Help! My Rentals are keeping me from getting a personal home loan
Weatherford, TX · Member since 2017 · 63 posts · 43 votes
Help! My Rentals are keeping me from getting a personal home loan
Most Popular Reply
Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
1yFind a non-bank lender or broker who offers bank statements loans - this is literally the situation that these products are meant to tackle. Also, if your rentals are already in service and the banks are using a blanket 75% of gross rents figure, theyre probably incompetent in their underwriting. They should be using a net rental income analysis which would produce an income figure specific to each property based on your reporting on Sched E. This is why I hate on big banks for mortgages - they suck at them.
Also, I normally try not to call out people or pick fights on social media, but please do not refi your loans into DSCRs thinking this will fix the problem. Almost all DSCRs require a personal guarantee, and PG'ing a loan WILL have the exact same effect on your DTI, regardless of whether the DSCR lender reports it on your personal credit report. Aside from all of the systems that lenders use to find undisclosed debt, one of the questions you'll be asked on the URLA/1003 (the application required for all primary residence mortgages) is basically "Are you responsible for any debt besides what we have already found?" If you lie in answering this question, it's straight-up mortgage fraud, which is exactly what you'd be doing if you answer No to this question while having PG'd a DSCR loan. Only nonrecourse loans will not affect your personal DTI - if you personally guarantee the debt, you're going to take the DTI hit for it unless you can qualify for it to be excluded.
Find a local lender who is skilled in working with self-employed and investor clients and talk through your situation with them.
23 Replies
- 1yAJ ExnerPro MemberLender · Springfield, MO · Member since 2023 · 652 posts · 314 votes
Hey Jason,
Sounds like it is time for you to refinance your properties into DSCR loans. The idea of funneling debt towards an LLC will help alleviate the DTI on your personal name and free you up to buy the home that you are wanting.
Good luck in taking a look, its a fun problem to have. Great job up to this point!
- Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes1y
Find a non-bank lender or broker who offers bank statements loans - this is literally the situation that these products are meant to tackle. Also, if your rentals are already in service and the banks are using a blanket 75% of gross rents figure, theyre probably incompetent in their underwriting. They should be using a net rental income analysis which would produce an income figure specific to each property based on your reporting on Sched E. This is why I hate on big banks for mortgages - they suck at them.
Also, I normally try not to call out people or pick fights on social media, but please do not refi your loans into DSCRs thinking this will fix the problem. Almost all DSCRs require a personal guarantee, and PG'ing a loan WILL have the exact same effect on your DTI, regardless of whether the DSCR lender reports it on your personal credit report. Aside from all of the systems that lenders use to find undisclosed debt, one of the questions you'll be asked on the URLA/1003 (the application required for all primary residence mortgages) is basically "Are you responsible for any debt besides what we have already found?" If you lie in answering this question, it's straight-up mortgage fraud, which is exactly what you'd be doing if you answer No to this question while having PG'd a DSCR loan. Only nonrecourse loans will not affect your personal DTI - if you personally guarantee the debt, you're going to take the DTI hit for it unless you can qualify for it to be excluded.
Find a local lender who is skilled in working with self-employed and investor clients and talk through your situation with them.
- Dallas, TX · Member since 2023 · 15 posts · 26 votes1y
Hi Jason,
For conventional loans concerning rental properties reported on your PERSONAL tax returns, underwriters will calculate your net rental income based on your Schedule E from your most recent tax return (using Fannie Mae form 1038), depreciation and depletion can be added back in to offset the expenses of the property. If you acquired a property after the most recent tax year, 75% of the lease amount will be used.
If the title of your properties is vested in an LLC, and you file a BUSINESS tax return, it's important to note that positive rental income cannot be used to offset your DTI. The rental income can only be used up to the point that it washes out the monthly PITIA (positive net rent cannot be used as income), or underwriters can perform a cash flow analysis of the business over the last two years. This is also true if you have DSCR loans that do not report on your personal credit. The liability from the DSCR loans will still be calculated on your business tax returns. If this is the case, and your LLC has made at least 12-month's mortgage payments for properties owned by your LLC out of a business bank account, Fannie Mae allows the mortgage liabilities to be excluded from your personal DTI, but any positive rental income cannot be used to help your DTI.
Feel free to reach out if you need a copy of Fannie Mae's rental income worksheet. I'll be happy to send it to you.
- 1yJay HurstBusiness MemberLender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
Quote from @Jason Smith:
Hey guys,
The banks are telling me that they can not loan to me for a personal home because of my Debt to Income is to high for their underwriting.
I have been working to build my rental portfolio for the last few years and currently I have about 10 properties that cash flow over $7000 per month all together. I also have earned income as well. According to multiple banks they can only count 75% of the income of each property which is really jacking up our Debt To Income. We have about $30k /month in income and about $12k/month expenses leaving a surplus cash of $18k/month.
We were wanting to purchase a new home for ourselves and have the cash flow to make it work. However the banks that are underwriting these deals are killing us (Frost and PenFed).
The home we are wanting to purchase will cost about the same as we are paying now so the Debt to Income should remain the same.I know I cannot be the only one that has ever had this issue. My question is, What are my options? How do I navigate this seemingly ignorant problem?
@Jason Smith Bank LO's are often more order taker's then problem solvers. If they are using 75% of the rental income they are not doing it correctly assuming the rentals you mention are on the tax returns. They way full doc programs work is they use this worksheet: https://content.enactmi.com/documents/calculators/Form1038.C...
This approach will allow you to add back the paper loss of depreciation, and add back mortgage interest, property taxes, insurance and any HOA dues. Using this approach your numbers will look much better. The only time 75% of the lease should be used is IF the property is NOT yet on the tax returns.
You are correct, you are not the first to have this issue, but typically it is more of an issue of LO's not understanding how it should be looked at. they just do not deal with investors often.
I would also echo Patrick above, moving your current loans into a DSCR loan would not change anything for your issue so please do not spend money doing that.
Hurst Real Estate, INC4.989 Reviews - Weatherford, TX · Member since 2017 · 63 posts · 43 votes1y
@AJ Exner. Many of the loans I have are DSCR loans. Since my business is structured as an LLC the taxes have them all reported together as LLCs are a pass through tax structure.
So what I am finding is that when lenders see this they lump all the debit and not all the income. It’s crazy! - 1yJay HurstBusiness MemberLender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
Quote from @Jason Smith:
@AJ Exner. Many of the loans I have are DSCR loans. Since my business is structured as an LLC the taxes have them all reported together as LLCs are a pass through tax structure.
So what I am finding is that when lenders see this they lump all the debit and not all the income. It’s crazy!The fact that the are DSCR or in a LLC does not change how they are calculated via this worksheet other then what John mentioned above. (actually a little bit worse then if not in the LLC) but this worksheet is still used on each property inside the LLC: https://content.enactmi.com/documents/calculators/Form1038.C...
Hurst Real Estate, INC4.989 Reviews - 1yAJ ExnerPro MemberLender · Springfield, MO · Member since 2023 · 652 posts · 314 votes
Quote from @Jason Smith:
@AJ Exner. Many of the loans I have are DSCR loans. Since my business is structured as an LLC the taxes have them all reported together as LLCs are a pass through tax structure.
So what I am finding is that when lenders see this they lump all the debit and not all the income. It’s crazy!Yeah, that is on the nose with how they function. You will get all the 'credit' for the debt that they incur but not of the income. So unfortunately, as you scale, finding creative solutions like my colleagues above have suggested will be the name of the game.
Personally, I tend to see it more with my clients when they are buying vehicles as they are scaling (crushes DTI/FICO in the short term), but that sucks that its impacting what you can do with your family. Of your 10 properties, what would you say is the ratio you have of conventional vs. non-conventional/DSCR?
- Real Estate Agent · Scottsdale, AZ · Member since 2024 · 155 posts · 103 votes1y
Hey Jason,
I feel your pain, it's like déjà vu. A couple of years ago, my buddy Mike over in Weatherford ran into the same brick wall. He had a strong portfolio with solid cash flow, but the big banks just couldn't see past their standard debt to income calculations.
What finally worked for him was connecting with a local community bank that actually took the time to understand his overall financial health. It made all the difference, and he was able to get the loan for his personal home without a hitch.
Another friend of mine found success by working with a mortgage broker who specializes in investor financing. They have relationships with lenders who think outside the box and can offer more flexible underwriting criteria.
I know it's frustrating, but there are definately options out there. If you'd like, I can introduce you to some of these folks—they've helped several of my clients in the Fort Worth area overcome similar hurdles.
And hey, if your ever considering expanding your investments into markets like Austin or Scottsdale, I've got some insights and connections that might be useful. Sometimes a fresh perspective and the right contacts can turn things around.
Don't let the traditional lending approach get you down. With your track record, you just need to find a lender who gets the bigger picture.
Feel free to reach out if you want to chat more, I'm always here to help a fellow investor.
- Jasper / Pat Aboukhaled
Turning investment visions into reality in Phoenix, AZ - Ranked #1 for residential real estate growth and opportunity by PwC - 1yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
@Jason Smith
I've run into this exact issue. I found a lender who's an investor like us who figures out ways to get it done for investors. He plays the game and was able to let them use 100% of my lease agreements amounts. And avoid looking at my tax return losses. I'm actually doing another loan with him right now and my DTI is 43%. PM me if you want his contact to see if he can get it done for you.
- Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes1y
Talk to multiple lenders. I had one lender tell me its impossible for you to buy another property and another lender ran it differently and approved me for 600k. It doesn't take much to get a lender license a lot of these loan officers are complete idiots. Find an expert who works with a lot of investors and have them run your DTI.
- Lender · Nashville, TN · Member since 2024 · 700 posts · 284 votes1y
You've gotta work with someone who understand the investor route, a broker, who knows who can actually get the loan done is your best bet!
If its not on your credit report, it shouldn't be calculated; I would use a bank statement loan to avoid your tax returns being requested at all.
Best of luck!
- Lender · Riverside, CA · Member since 2017 · 248 posts · 98 votes1y
@Jason Smith you may want to consider moving a few of those loans with comparable current interest rates over into an LLC and refinancing them into a DSCR product. I believe you are limited to 10 loans for you and 10 for your wife, but even though they are rented and bringing in income they go against your DTI.
- Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes1y
Dude, GREAT for you to have all these properties. These people are clowns, no really. Message my friend @Devin Peterson and he will take care of you. Unfortunately most corp. people cannot think outside the box.
- Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes1y
I'm in my dream home now and 10 out of 11 "lenders" told me it was impossible...Please try not to get discouraged and keep plugging away.
- Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes1y
Remember...No one cares about your success except for YOU.
- Member since 2024 · 1 post · 0 votes1y
Find a Bank or credit union that would let you refinance in your business name. This would help your situation because your "Debt" would not be reported on the personal side.
- 1yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
Your rentals cash flow $7000/month, according to the banks once you factor in your other income you have $18K a month...where is that money going?
If that is your monthly income (even taking a chunk our for your own rent and expenses), you should be able to save up for a home pretty quickly. Why not turn one of your rentals into your primary residence for a year or two, save up your money and then buy a home? By then rents will be a up a little bit and you will have paid down some of your mortgages (or your tenants will). You'd lose $700 a month in cash flow, but you'd also save money in rent. - 1yDevin PetersonBusiness MemberLender · Sarasota, FL · Member since 2022 · 2k+ posts · 664 votes
Quote from @Bud Gaffney:
Dude, GREAT for you to have all these properties. These people are clowns, no really. Message my friend @Devin Peterson and he will take care of you. Unfortunately most corp. people cannot think outside the box.
I’m happy to be the 1/11 that made this cut lol - @Jason Smith More than happy to connect! This is exact kind of common sense and creative underwriting we practice. I have a few solid ideas, secret sauce to success!
ProAlpha Capital56 Reviews - 1yJared RineBusiness MemberLender · Sacramento, CA · Member since 2009 · 1k+ posts · 277 votes
@Jason Smith..I'd recommend talking to me if you were in CA. You need a solid mortgage broker, not a bank. Plus it's hard to say without seeing your full debt load, but even if they are giving you 75% of each property to offset PITI for each property (if they're not on your Tax Returns), they still might not be calculating things correctly from what it sounds like. I do this stuff all day long, but you have great responses in this thread from very credible people on here. I don't know all of them but have been on BP long enough that if I were you, I'd talk to at least @Jay Hurst and @Devin Peterson
You could also bypass all Tax Return programs and go NonQM of some sort, such as a bank statement or other type, but you'd still have factor in your rentals.
Jared Rine United Lending Partners53 Reviews - 1ySteven LeeBusiness MemberLender · 18021 Norwalk Blvd Suite 209. Artesia, CA 90701 · Member since 2015 · 486 posts · 42 votes
Hi Jason,
There are 2 different loan programs you can qualify for if you can either provide 12 months bank statements NONQM (Non Qualified Mortgage) or Profit and Loss loan with 20% down. We are a licensed mortgage company. If you have any questions please feel free to message me. I would love to help!
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes1y
Quote from @Jason Smith:
Hey guys,
The banks are telling me that they can not loan to me for a personal home because of my Debt to Income is to high for their underwriting.
I have been working to build my rental portfolio for the last few years and currently I have about 10 properties that cash flow over $7000 per month all together. I also have earned income as well. According to multiple banks they can only count 75% of the income of each property which is really jacking up our Debt To Income. We have about $30k /month in income and about $12k/month expenses leaving a surplus cash of $18k/month.
We were wanting to purchase a new home for ourselves and have the cash flow to make it work. However the banks that are underwriting these deals are killing us (Frost and PenFed).
The home we are wanting to purchase will cost about the same as we are paying now so the Debt to Income should remain the same.I know I cannot be the only one that has ever had this issue. My question is, What are my options? How do I navigate this seemingly ignorant problem?
Aaaahhh, well, to "navigate this seemingly ignorant problem" I suggest you start by listening to what the debt experts are telling you, #1.
And than #2, go get informed on how to correctly operate and manage a portfolio. How to run the numbers, correct.
Oh.... You were thinking the lenders were the ignorant ones, not yourself...... Ah-yeah, gee, yeah-no, they know what there doing, you my friend do not.
They are trying to protect you from yourself and your efforts to over leverage yourself. because that's how you'd get to your next post of when the house of cards starts falling down and crushing you under it all.
What you detailed here is very normal and standard. You are simply NOT operating correctly. If want to argue the opposite, let us know where your cap-x account stands in reserve capital? How much reserve capital do you have liquid, at all? The answer is $0 isn't it....
- Weatherford, TX · Member since 2017 · 63 posts · 43 votes1y
Quote from @James Hamling:
Quote from @Jason Smith:
Hey guys,
The banks are telling me that they can not loan to me for a personal home because of my Debt to Income is to high for their underwriting.
I have been working to build my rental portfolio for the last few years and currently I have about 10 properties that cash flow over $7000 per month all together. I also have earned income as well. According to multiple banks they can only count 75% of the income of each property which is really jacking up our Debt To Income. We have about $30k /month in income and about $12k/month expenses leaving a surplus cash of $18k/month.
We were wanting to purchase a new home for ourselves and have the cash flow to make it work. However the banks that are underwriting these deals are killing us (Frost and PenFed).
The home we are wanting to purchase will cost about the same as we are paying now so the Debt to Income should remain the same.I know I cannot be the only one that has ever had this issue. My question is, What are my options? How do I navigate this seemingly ignorant problem?
Aaaahhh, well, to "navigate this seemingly ignorant problem" I suggest you start by listening to what the debt experts are telling you, #1.
And than #2, go get informed on how to correctly operate and manage a portfolio. How to run the numbers, correct.
Oh.... You were thinking the lenders were the ignorant ones, not yourself...... Ah-yeah, gee, yeah-no, they know what there doing, you my friend do not.
They are trying to protect you from yourself and your efforts to over leverage yourself. because that's how you'd get to your next post of when the house of cards starts falling down and crushing you under it all.
What you detailed here is very normal and standard. You are simply NOT operating correctly. If want to argue the opposite, let us know where your cap-x account stands in reserve capital? How much reserve capital do you have liquid, at all? The answer is $0 isn't it....
It seems as though you may have been personally offended by my request for help. It also appears that you are making quite a few assumptions as to how I operate my business. Your response was not helpful and only serves as a blight attempt to bash others. As far as I knew BP is a place to for people to come for help and the community has been very helpful in doing so with the exception of you.
So let's start with your point #1 on listening to the professionals. According to them I am not the only one that has come across this issue, nor have any of them indicated that I am operating in a financially irresponsible manner.
#2 I am on BP in part to learn like many others here. I also read daily and attend RE investor training courses regularly. Again, you are assuming what my portfolio looks like with no information to base it on. Seems like you may need to be the one to gain some insight before chiming in your 2 cents worth.
Furthermore, you may want to educate yourself on the topic of debt to income (you know the original topic of this post). Most traditional banks will not exceed a 50% DTI which makes sense to a point. Let's say a person had an income of 1,000,000 per month and $500,000 in expenses which would make their DTI 50%. That same person also has $500,000 of cash flow and wont qualify for a loan that costs $1,000/mth. This is what I was fighting to overcome. Thankfully with the help of OTHER BP members we have found a few routes forward.
As for my cash reserves? currently over $230K in reserves. I prefer to use opm as much as possible.
So in the future before you get on here and prove yourself to the arrogant know it all that you are displaying yourself to be maybe take a second to realize that you do not have all the information and are making assumptions about me and how I run my business.
Please feel free to PM me if you would like talk more about it. Im happy to entertain that conversation.
To all the other BP members I apologize for this post, I dont take kindly to anyone attacking me or my business without having a basis to do so.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes1y
Quote from @Jason Smith:
Quote from @James Hamling:
Quote from @Jason Smith:
Hey guys,
The banks are telling me that they can not loan to me for a personal home because of my Debt to Income is to high for their underwriting.
I have been working to build my rental portfolio for the last few years and currently I have about 10 properties that cash flow over $7000 per month all together. I also have earned income as well. According to multiple banks they can only count 75% of the income of each property which is really jacking up our Debt To Income. We have about $30k /month in income and about $12k/month expenses leaving a surplus cash of $18k/month.
We were wanting to purchase a new home for ourselves and have the cash flow to make it work. However the banks that are underwriting these deals are killing us (Frost and PenFed).
The home we are wanting to purchase will cost about the same as we are paying now so the Debt to Income should remain the same.I know I cannot be the only one that has ever had this issue. My question is, What are my options? How do I navigate this seemingly ignorant problem?
Aaaahhh, well, to "navigate this seemingly ignorant problem" I suggest you start by listening to what the debt experts are telling you, #1.
And than #2, go get informed on how to correctly operate and manage a portfolio. How to run the numbers, correct.
Oh.... You were thinking the lenders were the ignorant ones, not yourself...... Ah-yeah, gee, yeah-no, they know what there doing, you my friend do not.
They are trying to protect you from yourself and your efforts to over leverage yourself. because that's how you'd get to your next post of when the house of cards starts falling down and crushing you under it all.
What you detailed here is very normal and standard. You are simply NOT operating correctly. If want to argue the opposite, let us know where your cap-x account stands in reserve capital? How much reserve capital do you have liquid, at all? The answer is $0 isn't it....
It seems as though you may have been personally offended by my request for help. It also appears that you are making quite a few assumptions as to how I operate my business. Your response was not helpful and only serves as a blight attempt to bash others. As far as I knew BP is a place to for people to come for help and the community has been very helpful in doing so with the exception of you.
So let's start with your point #1 on listening to the professionals. According to them I am not the only one that has come across this issue, nor have any of them indicated that I am operating in a financially irresponsible manner.
#2 I am on BP in part to learn like many others here. I also read daily and attend RE investor training courses regularly. Again, you are assuming what my portfolio looks like with no information to base it on. Seems like you may need to be the one to gain some insight before chiming in your 2 cents worth.
Furthermore, you may want to educate yourself on the topic of debt to income (you know the original topic of this post). Most traditional banks will not exceed a 50% DTI which makes sense to a point. Let's say a person had an income of 1,000,000 per month and $500,000 in expenses which would make their DTI 50%. That same person also has $500,000 of cash flow and wont qualify for a loan that costs $1,000/mth. This is what I was fighting to overcome. Thankfully with the help of OTHER BP members we have found a few routes forward.
As for my cash reserves? currently over $230K in reserves. I prefer to use opm as much as possible.
So in the future before you get on here and prove yourself to the arrogant know it all that you are displaying yourself to be maybe take a second to realize that you do not have all the information and are making assumptions about me and how I run my business.
Please feel free to PM me if you would like talk more about it. Im happy to entertain that conversation.
To all the other BP members I apologize for this post, I dont take kindly to anyone attacking me or my business without having a basis to do so.
I congratulate you on having legitimate, healthy liquid cash reserves. That is an exceptionally rare position for one to hold when seeking to "hack" pressing leverage limiters.
The premise remains the same, as does my warnings. Albeit your in a much more advantageous position than most to survive the consequences of getting "caught" over leveraged. Most who gamble to such do not.
We are currently in the most volatile of times I have ever seen in my entire life, and that's really saying something. The risks are significant, and very real. So when a major financial institute says your not financially stable enough for additional debt, YOU SHOULD LISTEN.
Now, as said, you have a unique reserves position, so more capable than >90% to take that risk.
Most doing such today, are using a VERY failed concept of thought of expecting pandemic-era type returns/appreciation. Because novice's have a reflex of expecting yester-markets future re-run, and it rarely does come in 2's.
This market cycle we now entered is one I call "Feeling The Pain". There will be stagflation MSA's, there will be appreciating MSA's, some declining MSA's and some MSA's that will look a lot like iterations of a crash or collapse.
What we are starting now is HYPER-local in extreme national variance.
Over-leveraging is wildly dangerous in this market we are now entering and beginning.
Everything you stated was completely blowing off any notion of over-leveraging. It's ignorant to say it's without possibility that your over leveraging when a financial institution who has ever incentive to sell you $ says your unsafe to lend more $. In all I read from you it was stating as if they are clueless in what they are doing. That wreaks of arrogant ignorance. Is it, IDK, but it sure sounds like it and I never noticed a consideration of "are they right".
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