Paying debt with a business to improve personal DTI (episode 943)

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Paying debt with a business to improve personal DTI (episode 943)

Investor · Seattle, WA · Member since 2015 · 91 posts · 13 votes

In episode 943 of the podcast the guest, Jeff, said that if you pay your debts through a business account for 12 months, they will no longer apply to your personal debt-to-income ratio (DTI). Does that apply to conventional loans in general?

If so, I'm wondering if that can help me out. I currently own a condo, a duplex, and my personal home (half of which is rented out) all under my own name. Would simply owning these properties through an LLC (with an associated business account) be enough to benefit from this? Is there some other way to have your rental mortgages paid through a business?

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Jason WrayPro Member
Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
2y
Ben,

It applies to Conventional loans and other programs as well because its seen as a "Business expense" but you have to provide either 12 months cancelled checks or 12 months business checking account statements to show being paid for all 12 months. Then the debts are "Omitted".

This is usually more beneficial for a person who receives W2 income from an employer and wants to exclude their W2 income from being hit by the credit cards, automobiles or mortgages being paid out of their business checking account.

There are also ways to gross up some of the income but some lenders have overlays and hit you with things rather than allowing add backs. You also have DSCR that "Does Not" use income - No income, No tax returns and just uses rents to qualify for purchase or cash out refinances. DSCR rates have been lower than conventional lately and DSCR offers 40 years amortization, 5/6 ARMs, Interest Only to help cash flow.
If you have any questions feel free to reach out I enjoy helping and talking REI!
[email protected]727-637-4289
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Jessica Angulo
Lender · Miami, FL · Member since 2024 · 18 posts · 2 votes
2y
Quote from @Ben Lukes:

In episode 943 of the podcast the guest, Jeff, said that if you pay your debts through a business account for 12 months, they will no longer apply to your personal debt-to-income ratio (DTI). Does that apply to conventional loans in general?
If so, I'm wondering if that can help me out. I currently own a condo, a duplex, and my personal home (half of which is rented out) all under my own name. Would simply owning these properties through an LLC (with an associated business account) be enough to benefit from this? Is there some other way to have your rental mortgages paid through a business?
Hi Ben, what is the reason you are not wanting your rentals to affect your DTI and why are you thinking they are affecting you?
Knowing more specifics about your scenario and goal, will help provide a more customize approach for you.

For conventional financing, it depends how you are reporting your rentals on your tax returns, to determine how the income/expenses are netting in a positive or negative manner.

Yes, you can omit debt payments from your personal liabilities showing a 12-month history of being paid by a “third party”, which can be your business account.

Consider speaking with a CPA as well on how to better structure your investments.

If your goal is to purchase another investment property or to refinance such, you can use a specific mortgage for investment properties that does not use your personal income.

Happy to connect and further review your goals.
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Ben Lukes
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Investor · Seattle, WA · Member since 2015 · 91 posts · 13 votes
2y
@Jason Wray
Yes, I have W2 income. I’m wondering if RE investing alone could be the business that pays the debts…but then maybe I’d be exposed to WA business taxes…I’ll have to look into that.
Interesting to hear that DSCR loans have lower rates than conventional right now. Last time I checked the rates were around 9-10%. Would you use a loan like that on a single family rental, or just 5+ units?
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Jay HurstBusiness Member
Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
2y
Quote from @Ben Lukes:

In episode 943 of the podcast the guest, Jeff, said that if you pay your debts through a business account for 12 months, they will no longer apply to your personal debt-to-income ratio (DTI). Does that apply to conventional loans in general?
If so, I'm wondering if that can help me out. I currently own a condo, a duplex, and my personal home (half of which is rented out) all under my own name. Would simply owning these properties through an LLC (with an associated business account) be enough to benefit from this? Is there some other way to have your rental mortgages paid through a business?

@Ben Lukes Understand this simply keeps a debt from being double counted in most cases because the LLC/business that owns the debt will file a business return that will flow over to your personal returns. So, if that business is showing a big loss after adding back deprecation, and other add backs for rental income, that loss (or gain) will still be calculated into your debt to income ratio.
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Ben Lukes
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Investor · Seattle, WA · Member since 2015 · 91 posts · 13 votes
2y
@Jay Hurst
That makes sense. I wonder what others here think of that.
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Jay HurstBusiness Member
Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
2y
Quote from @Ben Lukes:

@Jay Hurst
That makes sense. I wonder what others here think of that.

Here is what the actual source, Fannie Mae who makes the rules for conventional mortgages:
https://selling-guide.fanniemae.com/sel/b3-3.1-08/rental-inc...
You would be looking for the section on "offsetting monthly obligations for rental property reported through a partnership or S Corp". It lays it out.
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