Debt/income ratio problem with investment financing

4 Replies

I'm having this problem when looking for financing to purchase a 2nd home as investment. This will not be a long-term buy-hold and I only need financing for 2-3 years before selling. The cash on hand is enough for 20~25% down payment and my expected monthly income will be more than enough to cover PITI.

The trouble is that a significant percentage (nearly 50%) of this income will be coming from future sales of RSU (restricted stock units). The RSUs are vested on a regular monthly schedule and I already have two years of tax return showing them, but all the conventional lenders I've talked to would not include value of stocks in debt/income ratio calculation unless they are already vested today. 

@Haixia Shi   what you say seems correct, but is there a question in there?

Sorry for not being clear. My question is whether the income qualification guideline vary among conventional lenders and some may allow inclusion of future sale of stocks. If not, would it make sense to look for private hard money lenders who may have looser standards with income verification.

My own calculation based on the last 2 years tax return and the known scheduled stock units (guaranteed for the next 4 years) shows that my income is sufficient.

Originally posted by @Haixia Shi :

Sorry for not being clear. My question is whether the income qualification guideline vary among conventional lenders and some may allow inclusion of future sale of stocks. If not, would it make sense to look for private hard money lenders who may have looser standards with income verification.

My own calculation based on the last 2 years tax return and the known scheduled stock units (guaranteed for the next 4 years) shows that my income is sufficient.

 HI Haixia,

The looming issue from a lenders point of view (what I do day to day) is that your income source that we're discussing here, the stock options given to you, is not a reliable source of income because lending is about "cash flow," like Robert Kiyosaki, talks about.

So if I understand correctly your W2 shows this as taxable income but you're not allowed to use it because your're not vested and have not actually had the ability to obtain these funds as cash right? 

This would ultimately mean you cannot use this to pay for loan payments (till its vested) and hence cannot be used in qualifying income.

Most lenders look at your scenario in one dimension. There are many ways to structure deal to make it work it takes that out of the box scenario at times. 

Hope that helps or just reaffirms why you're being given this conclusion.

Let me know if you have any questions, feel free to PM me.

@Haixia Shi  

Are both properties local? How about moving into the 2nd house and finance it as a primary? If your current house was higher in mortgage payment than this 2nd one, you can free up some cash flow there. Also I can't remember if the bank counts the potential rental income from your current house or not. I think they counted 60% or something for me in 2012.

Then you get lower interest rates and lower down payment.

Plus, if the bank think you are stretching your monthly income too thin, you should probably consider if you actually are. Do account for a lot of unforeseen expenses, almost over compensate for them. You don't want to be in the red by the end of the day.

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