Gonna be a bit long but here goes...
I bought a couple for 4 families a couple years ago with my brother. We went 50/50 on the deals (he is a totally passive investor, I basically manage his money for him) so we're both on the mortgages and both on the titles as TIC. On our taxes we claim 50% of the income/expenses/depreciation accordingly. Well, just put in a pre-approval application for a new mortgage and the loan officer tells me it looks like my DTI is off as the properties are performing poorly. I'm surprised since I made more money than last year and have two cash flowing properties. I know they're doing something wrong so I ask to see her numbers...
Turns out they're counting half the total property income for me which makes sense as I'm a 50% owner and that's what I claim on my taxes. But they have me on the hook for 100% of PITI on both quads. Well ya, of course it makes my DTI look like crap then. My brother's half of the income is obviously covering half of PITI/expenses. When I point out their calculation she gets back with me later in the day to let me know they'd be able to use 100% of the income from the properties if my brother is on the new mortgage and says in that scenario everything would be good to go. While that works for us right now (and importantly for now I get a letter in order to submit with offers) it just doesn't seem right. I'm tied to my brother on every deal going forward because we partnered 50/50 on a deal?
I mean I can somewhat see it from their standpoint. They can only see my half of the Schedule E on this new application yet I'm on the hook for 100% of the mortgage. But there has to be some way around this either on their side or on how I should have structured the purchase/holding. Certainly partners don't each get penalized for 100% of the debt burden while only claiming their respective portions of income. If this was the case no one would partner on everything. What about a 10% partner? They on the hook for 100% of expenses too? The lender seems competent and very on point but my guess is she isn't overly familiar with investors, especially multiple property situations.
This is a major national lender, same people I used for the purchase of my quads, my primary residence, and all my investment accounts etc. I mean, it's hard to complain, I got the two non owner occupier properties @ 3.75% on 30yrs. I'm sure portfolio/commercial lenders can work this better but I'm trying to max out on the conventional side of the house before I go that route.
What am I missing here? Appreciate any input.
As a former mortgage banker, and heading back in to the business, I would ask to see the specific lenders underwriting guidline on your scenario. I would also ask her to take this to the head underwriter to get a ruling on this. If necessary, get a copy of your brothers tax returns to prove to them that they have the same income and expenses on those properties and each of you own 50%. I would also show any documents that you have that show the ownership percentages each of you own, such as the purchase agreements if they showed a 50/50 relationship.
This should be do-able with common sense underwriting and or an exception due to compensating factors.
I've experienced this exact same thing happening with a refinance I was involved with. Common sense dictates that you should only be hit for 50% of the mortgage expense. The first lender that the loan was submitted to rejected the loan for the same reasons you reference above, but the loan was resubmitted to another lender and they underwrote the deal differently and it was accepted. Just shop around and explain up front what the deal is and you should get an answer that satisfies. @Kevin R. also has a good suggestion regarding asking for the specific guidelines the lender is using.
Kevin, thanks, that's about what I was thinking but I want to get some feedback from here to add in as well. I had provided my brothers tax returns but good point on offering them documentation. I'll sent in the TIC agreement. You would think that especially since they are the same lender who has him on the hook for the property in question they would be even less concerned that his portion of the income is somehow in danger.
This can't be uncommon, I'm sure this happens all the time so I'm hoping more people chime in. I think I may have chosen the title for this thread poorly.
Jesse, ya, I'm going to approach a couple different lenders and let this one know I intend to. I like them, they already have all my info/documentation on file, etc. so I'd prefer to use them but still. Like I said, my bro is willing to be in on this but it makes more sense for us to stay off each others mortgages going forward so we can maximize the number of conventional financing deals.
Anyone have any last insight before I call the loan officer?
So, she said they can probably work around it with her head underwriter. Probably. Was hoping for some more feedback but I didn't exactly choose the most attention grabbing thread title, ha.
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