Debt to income ratio too high

12 Replies

My mortgage broker preapproved me last March for a loan amount of $86,250. Last week, I asked him about a cheaper unit where the loan amount would be $81,750. Since nothing has really changed since my preapproval last March, I thought I'd be good to go. My income is the same if not slightly higher and the only debt I have the mortgage on a rental condo (which is currently rented out). My credit score is higher than last year (don't know if that matters in this case). The units are identical in same bldg, so taxes and HOA are exactly the same. I also have reserve funds in savings for the rental.

This time though, he says my DTI is too high - 63% and he needs it under 50%. When we did the preapproval last March, I hadn't yet found a renter for my rental unit. The mortgage broker plugged in $1200/mo in rent. I rented the unit 3 months later for $1150/mo. He says my DTI is too high because it was only rented for 6 months in 2017. He says before he calculated it being rented for 9 months of the year... this is where I start to have problems understanding this.

I don't understand how he preapproved me last year when I didn't yet have any rental income history from my rental unit.  And, now.. when I have rental income, he can't.  Before I did this, I was under the impression I'd need a couple of years rental income before I could count it as income for another mortgage.  This mortgage broker assured me he could use the rental income as soon as I got a lease on the place.

This guy has always been really nice in the past, but he sent me a very short email on Friday night asking if a parent could co-sign (I'm a 45 year old man). He didn't give me any other options and didn't explain any of it. Can I make a larger downpayment to get to the target DTI? Can I pay down the rental unit's mortgage a bit to get to the target DTI?

I do have an 80 year old Mom who would co-sign, but of course I want that to be an absolute last resort.  I don't want my Mom's name on my property if at all possible.  My main concern is that she probably won't be around in 5-10yrs.  So, what happens when she passes away and my brother, sister, and I are trying to deal with her finances?  Are my brother and sister then going to find themselves in the middle of this?  I've been stressing out all weekend over this.  I have the perfect unit on the market right now that I want to put an offer on and the price is a steal, so it won't last long.

I would really appreciate any help in understanding this situation..thx

deffinetly a new lender. if its on the tax return, should be no issue.

Different lenders may give different options.

If your mom owned part of the property and passed away, then how it was distributed would depend on her estate plan. She should talk to an attorney about that, who could advise on how to hold title. joint tenancy with eight of survivorship means it all goes to you. Some states have beneficiary deeds. She could put it in her will/trust and leave any interest in the property (with encumbrances) “off the top” to you. I’m assuming she’s own an interest in the property too as I say this though — if it’s just she’d owe on the debt then her estate would owe it and it could make siblings unhappy if part of their share of inheritance goes to pay off a loan on a property you own. There’s a lot of ways to structure and plan it.

It should not be a problem on a Fannie Mae loan. If you haven't filed your tax return just yet, the lender will use your lease agreement minus 25% for vacancy and maintenance, CAP X and management and then subtract the PITI. If it is a positive number, it will add to your income, if it is a negative number then they will add it to your debts. Most rentals are close to debt neutral. So you should not have a debt ratio issue based on what you said above.

If you have filed your tax return, then the lender will use the net income off the tax return divided by the number of month the property was placed into service last year. 

@Douglas T. sounds like a lender overlay.  You should be able to use the full lease amount minus the 25% vacancy factor and call it a day.

@Douglas T. - Like others have said try a different lender/broker, something isn't right here. Please update us on the outcome, there are solutions and referrals people in this forum can make to help you out. 

Yes, the first thing to do is try a different lender.

If your mom does need to cosign, if you hold title as Joint Tenants, if she were to pass, the property would only go to you and would not need to worry about your brothers and sisters getting involved. 

I have had to ask him 4 times what amount he used for a downpayment.  I have asked him multiple times to see the figures he used in his calculations.  Finally he sent me a "rental worksheet".  I don't see what the downpayment is or what the monthly payment is on there.  It looks like nothing more than the calculations he used for my rental properties.

He made sure to tell me that he was trying to help me in between clients in his office when he emailed me to tell me he used a 20% downpayment.  I asked why he told me last time I would need 25%.  His answer:  "Because this was a higher purchase price and that unit owner had higher property taxes which were hurting your qualify ratio."

Why wouldn't he have just done the same thing and used 25% down if my ratio needed help? I have no clue what difference 20% vs 25% down would make on my DTI ratio, but I'd really like to know. I'd like to know how much it would change if I put 30% down. I'm at 63% and he said he needs me under 50%.

He seems to get more and more agitated as I ask more and more questions.  My gut feeling is something isn't right.  The realtor suggested I use Quicken Loans.

Originally posted by @Veronica Frieling :

Yes, the first thing to do is try a different lender.

If your mom does need to cosign, if you hold title as Joint Tenants, if she were to pass, the property would only go to you and would not need to worry about your brothers and sisters getting involved. 

I'm actually more worried about my brother and sister being saddled with the debt my Mom co-signed if something were to happen to me after my Mom passes.  I just don't want them to be in any way tied to this debt if my Mom were to co-sign.  Of course I've asked the mortgage broker, but he just tells me what he thinks I want to hear... "Oh, it will be no problem at all".

I think you should look for another broker. My broker has told me he can loan with a down payment as low as 15% and use rental income of 75% after 3 months of rent being paid. Also, figure your own DTI to make sure your broker's number is correct. I always figure out my own numbers because the number my broker comes up with should be spot on or really close. Its a good idea to always know where your DTI is at any given point.

@Douglas T.   One thing to consider - the more money you put down on an $81,000 property, the lower your loan amount will be.  If you have too low of a loan amount it gets harder to do the loan, as many lenders do have minimums.  This might be causing a problem.

Regardless, as others have said you should be able to use 75% of the rental income if you haven't done your taxes yet.  @Kevin Romines gave a great explanation above. It's hard to say what your DTI would be without seeing all the numbers.

@Melvin List is in Florida if you need another option.  Sorry you're running into difficulties!

Just an update... I applied for a mortgage on my credit union's website yesterday and received a pre-approval letter this morning.  By 5pm, I had placed an offer which was almost immediately accepted.  The email I received from the credit union only listed about 10-12 documents they'd need with the signed contract, but I'm guessing they will keep wanting more and more documentation.  Maybe not... I've been with this credit union for 21 years and had an auto loan and several personal loans with them.  Fingers crossed!  Thanks for all the replies.

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