Rent or Own while investing?

[Rick Roach]

I am currently renting and considering buying a primary residence. If I buy my personal liabilities go up and so does my DTI. Do underwriters favor someone who is renting when loaning on investment properties? In other words will it help my DTI and have a favorable impact on my ability to borrow for investing if I rent instead of buy a home?

[Kevin Romines]

@Rick Roach Your debt ratio is your debt ratio, no matter if your renting or if you own? If you will be paying less monthly by renting, then that will give you a better DTI or debt to income ratio.

When you buy a rental, depending on the cash flows from the property, it will either add to your debt ratio, stay the same or maybe even lower your debt ratio. Lenders look at rentals as rents X 75% minus PITI.

So if after that calculation, the number is a negative number, that would then add to your debt and raise your debt ratio. If the number is a positive number, then that adds to your income and lowers your debt ratio. 

You can count existing rents from a place your going to buy, or you can get a new lease agreement in place, collect the 1st month plus deposits and therefore count rents that way, or if the property is vacant and wont be rented before you close, the appraiser will assign a market rent's value on the appraisal and they will do the calcs off that. 

In one way or another, you going to be count rents to offset the PITI. The question is, how good of a job did you do buying the property and will it throw off a positive cash flow?