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?
Underwriters will favor the person who has the lowest DTI. Whatever you can do to reduce that number the better.
So does rent count on the DTI?
Rent counts. I think the ur lease agreement will be enough before tax return is due, but more than that u need the income to show on tax returns
Sorry I should have been more clear. I meant to say does my rent payment count as a liability on the DTI. From what I have read so far it looks like it doesn't. My thought is that if I rent instead of own a home it will allow me to borrow more money for investment properties. Is that right?
@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?
Yes. Your rent payment will count as a liability in your DTI calculation.
So if you're paying 1,000 a month towards rent or you're paying 1,000 a month towards PITI on a mortgage, the DTI calculation would work exactly the same.
Basically, they're trying to find out what your living expenses are. So whether its rent or PITI they don't care. But they know you have to pay for housing no matter how you cut it so they're going to use that amount.
As a renter... I can tell you I've had zero problems getting loans. They probably won't even need your lease, just the amount and contact info for landlord or PM. If they don't ask for the contact info they will and it'll be a huge problem for them (they can't sell your loan w/ out it) as they need to verify the rent.
I'd suggest talking to a investor friendly lender and building that relationship while discussing your goals. They'll help you/point you in the "best" direction....
Thanks to all for your replies! It helps to get info from those who know!