$250/mo in minimum payments on consumer debt works out to roughly & super ballpark $50k in purchasing power.
It’s a straight calculation. I believe the “back end” (total monthly debt obligations) is 45%.
So, $450 in car payment reductions, allows you another $450/mo in mtg payments, or approx another $90k......assuming this doesn’t bump your “front end” DTI of the mtg payment only, above 36%.
These are the conventional DTI’s in my mind, I know they can vary, ask your lender for a real analysis.
Some real lenders can tell me if I’m thinking about this wrong.
In the market I've been reviewing lately (Rochester NY - hometown), an extra $50-90K in buying power would exponentially increase my ability to close on a decent-quality multifamily instead of SFH.
Will definitely make sure to confirm with local lender, but it's after banking hours and the question was burning in my mind.
@Tim Joyce , reach out to @Tim Swierczek when you have a chance. He is a financing expert and I recently closed on a conventional loan with him. If you are comparing single and multi-family properties I believe you may only need 10% down for a single family property however you will need 25% down for a multi-family property. So DTI is important however your down payment required will also be something to consider.
In general DTI is concerned with your monthly payment obligations. If you are looking to increase your DTI, your purchasing power will typically get bigger by paying down the shortest term debt, likely your car. From a financial standpoint it typically makes sense to pay down the loan with the highest interest rate, typically credit cards, so this is something to think about.
Depending on the properties you are looking at, hopefully you are looking at ones which will positively affect your DTI. If you connect with Tim he can give you an idea where you are at and whether you need to drop your DTI before making a purchase. You were probably in good shape when you purchase your house but the addition of the student loan payments and vehicle purchases could have thrown you over the conventional limits.
Also @John Woodrich makes a great point. Your down payment is a major factor. DTI is pass-fail. If your DTI is acceptable it would be better to look at using your capital to buy more properties, and use the cash flow from those properties to extinguish the auto loan debt more rapidly, if it appears they will affect further purchases. @Tim Joyce
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