How does a rental property affect your debt-to-income ratio

[James Sutton]

Hell Everyone,

I'm trying to figure out how much the debt of my cash flowing rental condo adds to my overall "debt-to-income" ratio. 

I have a 2 year outlook and deciding whether it would be better for my wife and I to a) sell our house and move to the town where we want to be, b) stay at our current home and purchase a rental property, or c) buy a new house, move, and then rent out our current home we live in. I think a big part of the deciding factor for those three decisions will be what my debt-to-income percentage we will have and the ability to get a mortgage. 

The Condo: (Owned 6 months, rented for 5 months)

Purchased November 10th, 2015 - $122,000

Appraised when purchase (before $8,500 repairs) = $172,500

Mortgage + HOA + Insurance + Taxes = $856.15

1 year signed lease Rental Income = $1,500.00

Net Monthly Cash = $643.85

My Wife and I:

I have a credit score of 804 and she has 795

We will have 20% for which ever property we choose.

If I choose all the income we have (Gross Monthly) and take the Monthly Debt percentage, we both combined we have a "Debt-To-Income" of 28%. That includes the rental income, and monthly rental expenses.

Contractor:
As for myself, I am an offshore oil and gas inspection manager. I'm freelance and earn contract monthly sums. It's a bit hard for me to analyze my gross monthly. I question whether it would be straight gross, or, "after business expenses but before tax liability". Should my gross be based before or after estimated self-employment tax?

I feel like I'm on the line of making out my leverage and ability to get traditional mortgages or portfolio loans. However, I think I'll be able to get one more and it seems knowing which avenue will affect my debt-to-income the best will give me the best opportunity to get a loan. Then I can assess which method will best support improving our monthly cash flow and lifestyle goals.

Any advice would be much appreciated.

[Brie Schmidt]

@James Sutton

If you purchased it in November 2015 and it is only on your schedule E for 2 months then the lender will likely do 75% of rents minus PITIA

So 75% of $1500 = $1125 - $856.15 = $268.85 monthly income to the lender

Once it is on your Schedule E they will take Gross rents reported minus expenses.  Then they add back in depreciation, interest, insurance, taxes, and hoa dues.  Take that number and divide by 12 then minus your PITIA payment

I uploaded an excel file in the file place here:  https://www.biggerpockets.com/files/user/chicagobr...

It does not have a line for HOA so if you have that add that to eligible expenses