Leasing a new car (Conventional DTI Concerns)

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Leasing a new car (Conventional DTI Concerns)

Brian Garrett
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes

So I decided to sell my luxury car in order to free up more capital for real estate deals.

I couldn't justify having a lot of cash tied up in an expensive vehicle anymore knowing I could be investing that money.

I currently have no wheels so I obviously need to replace the car I just sold with something more economical ASAP.

Here's where I could use some input/advice particularly from you mortgage brokers and conventional lenders:

I'm self employed (10+ years) but my tax returns show low income due to business expenses and write offs.

Although my net income shows low on paper I have zero debt, Tier 1 credit and a healthy amount of cash on hand.

Technically my DTI is still okay (per Fannie/Freddie guidelines) since I have literally no debt of any kind reported.

With that being said I'm afraid if I go lease a new vehicle, even if it's something cheap, it may impact my DTI just enough to affect me being able to qualify for conventional Fannie/Freddie loans since there would be debt reported then.

Right now I'm actively looking for a conventional Fannie/Freddie lender to work with for acquisitions and cash out refinances. I'd hate to go lease a new car this week only to find out I can no longer qualify because of the lease. 

Would it be wiser to buy something cash again (but cheap this time) to stay debt free and not take the chance of negatively impacting my DTI any further since my income already shows low as it is?

Thanks in advance and if you need further information and/or specific numbers please feel free to message me!

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Kyle J.
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
8y

If your income is "low on paper", you have a "healthy amount of cash on hand", and your primarily concerned with your DTI and future borrowing ability, then there is no scenario where leasing a car would be better than buying one outright with cash.

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  • Jason D.
    Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    8y
    @Brian Garrett within 45 days but it's only for mortgage lenders running credit.
    1Reply
  • Brian Garrett
    OP
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    8y
    Originally posted by @Mark Robert:

    @Brian Garrett

    Going back to your OP it seemed to me your main concern was saving money to invest in RE deals. 

    Getting into a lease isn't going to help your DTI as discussed in previous posts and is also a costly option in general when factoring insurance, fees, etc... I like your idea of purchasing something decent for cash. This will provide you with the best bang for your buck.

    With that being said you may want to consider speaking with your tax preparer. From what I understand leasing a vehicle when self-employed can have some nice tax benefits. 

    Thanks for your input Mark. I did speak with my CPA about it and yeah there are definitely tax benefits of leasing. I'm waiting to hear back to see if I could put the lease under my company name to avoid it effecting my personal DTI or not. If not then I will just buy something older and cheaper with cash even though my main objective was to have as minimal cash outlay as possible. That's what was so attractive about the $0 down lease since I could have nothing out of pocket and minimal monthly payments versus $10k or whatever it will end up costing to buy something outright all at once.

    0Reply
  • Brian Garrett
    OP
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    8y
    Originally posted by @Jason D.:
    @Brian Garrett within 45 days but it's only for mortgage lenders running credit.

    Good to know it's 45 days thanks Jason.

    0Reply
  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    8y

    Let me try it like this

    A $5k car is cash will prevent you from buying $25k in house (assuming 20% down)

    a $250 / mo car lease will prevent you from buying $50k in house (assuming 20% down)

    It is a personal decision, but I would buy the car in cash 

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    7Reply
  • Mark Robert
    Rental Property Investor · West New York, NJ · Member since 2015 · 27 posts · 7 votes
    8y
    Originally posted by @Brian Garrett:
    Originally posted by @Mark Robert:

    @Brian Garrett

    Going back to your OP it seemed to me your main concern was saving money to invest in RE deals. 

    Getting into a lease isn't going to help your DTI as discussed in previous posts and is also a costly option in general when factoring insurance, fees, etc... I like your idea of purchasing something decent for cash. This will provide you with the best bang for your buck.

    With that being said you may want to consider speaking with your tax preparer. From what I understand leasing a vehicle when self-employed can have some nice tax benefits. 

    Thanks for your input Mark. I did speak with my CPA about it and yeah there are definitely tax benefits of leasing. I'm waiting to hear back to see if I could put the lease under my company name to avoid it effecting my personal DTI or not. If not then I will just buy something older and cheaper with cash even though my main objective was to have as minimal cash outlay as possible. That's what was so attractive about the $0 down lease since I could have nothing out of pocket and minimal monthly payments versus $10k or whatever it will end up costing to buy something outright all at once.

     I understand your thought process regarding no money down, that is an attractive option. Don't forget to factor the increased cost to insure depending on the state you live in. I'm in NJ and those dollars could really start to add up.  It would be a plus if you were able to have that expense fall under your business entity. Good luck and let us know what you decide!

    0Reply
  • Eric C.
    Investor · Grand Junction, CO · Member since 2017 · 207 posts · 201 votes
    8y
    Originally posted by @Brian Garrett:
    Originally posted by @Mark Robert:

    @Brian Garrett

    Going back to your OP it seemed to me your main concern was saving money to invest in RE deals. 

    Getting into a lease isn't going to help your DTI as discussed in previous posts and is also a costly option in general when factoring insurance, fees, etc... I like your idea of purchasing something decent for cash. This will provide you with the best bang for your buck.

    With that being said you may want to consider speaking with your tax preparer. From what I understand leasing a vehicle when self-employed can have some nice tax benefits. 

    Thanks for your input Mark. I did speak with my CPA about it and yeah there are definitely tax benefits of leasing. I'm waiting to hear back to see if I could put the lease under my company name to avoid it effecting my personal DTI or not. If not then I will just buy something older and cheaper with cash even though my main objective was to have as minimal cash outlay as possible. That's what was so attractive about the $0 down lease since I could have nothing out of pocket and minimal monthly payments versus $10k or whatever it will end up costing to buy something outright all at once.

    Why do you need to purchase a $10k vehicle. Buy a 2-3k vehicle and then after you close on your purchase, then sell it and lease something for tax advantage. You could also find a 2-4 unit property and then the rental income on the non-owner occupied units will help your DTI in qualifying.

    2Reply
  • Brian Garrett
    OP
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    8y
    Originally posted by @Mark Robert:
    Originally posted by @Brian Garrett:
    Originally posted by @Mark Robert:

    @Brian Garrett

    Going back to your OP it seemed to me your main concern was saving money to invest in RE deals. 

    Getting into a lease isn't going to help your DTI as discussed in previous posts and is also a costly option in general when factoring insurance, fees, etc... I like your idea of purchasing something decent for cash. This will provide you with the best bang for your buck.

    With that being said you may want to consider speaking with your tax preparer. From what I understand leasing a vehicle when self-employed can have some nice tax benefits. 

    Thanks for your input Mark. I did speak with my CPA about it and yeah there are definitely tax benefits of leasing. I'm waiting to hear back to see if I could put the lease under my company name to avoid it effecting my personal DTI or not. If not then I will just buy something older and cheaper with cash even though my main objective was to have as minimal cash outlay as possible. That's what was so attractive about the $0 down lease since I could have nothing out of pocket and minimal monthly payments versus $10k or whatever it will end up costing to buy something outright all at once.

     I understand your thought process regarding no money down, that is an attractive option. Don't forget to factor the increased cost to insure depending on the state you live in. I'm in NJ and those dollars could really start to add up.  It would be a plus if you were able to have that expense fall under your business entity. Good luck and let us know what you decide!

    Will do thanks buddy. I've gotta figure it out soon before I know every Uber driver on a first name basis, lol.

    0Reply
  • Brian Garrett
    OP
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    8y
    Originally posted by @Eric C.:
    Originally posted by @Brian Garrett:
    Originally posted by @Mark Robert:

    @Brian Garrett

    Going back to your OP it seemed to me your main concern was saving money to invest in RE deals. 

    Getting into a lease isn't going to help your DTI as discussed in previous posts and is also a costly option in general when factoring insurance, fees, etc... I like your idea of purchasing something decent for cash. This will provide you with the best bang for your buck.

    With that being said you may want to consider speaking with your tax preparer. From what I understand leasing a vehicle when self-employed can have some nice tax benefits. 

    Thanks for your input Mark. I did speak with my CPA about it and yeah there are definitely tax benefits of leasing. I'm waiting to hear back to see if I could put the lease under my company name to avoid it effecting my personal DTI or not. If not then I will just buy something older and cheaper with cash even though my main objective was to have as minimal cash outlay as possible. That's what was so attractive about the $0 down lease since I could have nothing out of pocket and minimal monthly payments versus $10k or whatever it will end up costing to buy something outright all at once.

    Why do you need to purchase a $10k vehicle. Buy a 2-3k vehicle and then after you close on your purchase, then sell it and lease something for tax advantage. You could also find a 2-4 unit property and then the rental income on the non-owner occupied units will help your DTI in qualifying.

    Yes I'm planning on using the property itself to help qualify and I've talked to all the lenders about that already. As far as the $10k car that was just a number I threw out there as a ballpark. I've never looked up old cheap cars before.

    0Reply
  • James W.
    Minneapolis, MN · Member since 2017 · 353 posts · 223 votes
    8y
    Originally posted by @Brian Garrett:
    Originally posted by @Mark Robert:

    @Brian Garrett

    Going back to your OP it seemed to me your main concern was saving money to invest in RE deals. 

    Getting into a lease isn't going to help your DTI as discussed in previous posts and is also a costly option in general when factoring insurance, fees, etc... I like your idea of purchasing something decent for cash. This will provide you with the best bang for your buck.

    With that being said you may want to consider speaking with your tax preparer. From what I understand leasing a vehicle when self-employed can have some nice tax benefits. 

    Thanks for your input Mark. I did speak with my CPA about it and yeah there are definitely tax benefits of leasing. I'm waiting to hear back to see if I could put the lease under my company name to avoid it effecting my personal DTI or not. If not then I will just buy something older and cheaper with cash even though my main objective was to have as minimal cash outlay as possible. That's what was so attractive about the $0 down lease since I could have nothing out of pocket and minimal monthly payments versus $10k or whatever it will end up costing to buy something outright all at once.

    I am not sure you will have much luck getting the vehicle loan in your business name.  If you do, it wouldn't be at a competitive market rate.  Absent a business, what would be the business purpose that a banker could justify being the reason for the loan?  

    Smart bankers lend based on the asset's ability to generate cash.  In your situation, the car seems like more of a personal need than a business need so they would likely tell you to speak with one of their consumer loan officers.  

    I agree with the others that your best bet is to buy a cheaper car with cash.  The last thing a starting business needs is excess financial strain that would be caused by a car payment.  

    0Reply
  • Brian Garrett
    OP
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    8y
    Originally posted by @James W.:
    Originally posted by @Brian Garrett:
    Originally posted by @Mark Robert:

    @Brian Garrett

    Going back to your OP it seemed to me your main concern was saving money to invest in RE deals. 

    Getting into a lease isn't going to help your DTI as discussed in previous posts and is also a costly option in general when factoring insurance, fees, etc... I like your idea of purchasing something decent for cash. This will provide you with the best bang for your buck.

    With that being said you may want to consider speaking with your tax preparer. From what I understand leasing a vehicle when self-employed can have some nice tax benefits. 

    Thanks for your input Mark. I did speak with my CPA about it and yeah there are definitely tax benefits of leasing. I'm waiting to hear back to see if I could put the lease under my company name to avoid it effecting my personal DTI or not. If not then I will just buy something older and cheaper with cash even though my main objective was to have as minimal cash outlay as possible. That's what was so attractive about the $0 down lease since I could have nothing out of pocket and minimal monthly payments versus $10k or whatever it will end up costing to buy something outright all at once.

    I am not sure you will have much luck getting the vehicle loan in your business name.  If you do, it wouldn't be at a competitive market rate.  Absent a business, what would be the business purpose that a banker could justify being the reason for the loan?  

    Smart bankers lend based on the asset's ability to generate cash.  In your situation, the car seems like more of a personal need than a business need so they would likely tell you to speak with one of their consumer loan officers.  

    I agree with the others that your best bet is to buy a cheaper car with cash.  The last thing a starting business needs is excess financial strain that would be caused by a car payment.  

    Thanks James I appreciate your thoughts.

    0Reply
  • Michelle Verdugo
    Brooklyn, NY · Member since 2018 · 45 posts · 18 votes
    8y

    Interesting thread. Have learned a lot. I'm in the same boat - great credit, cash on hand, not working full time and weighing the pros and cons of buying a car vs. zipcar. I've had nice cars in the past and don't like the idea of a cheap car - how does that effect my personal brand? I'm only half joking on that point. Let us know what you end up doing!

    1Reply
  • Rashad Jones Jennings
    Developer · Atlanta, GA · Member since 2016 · 165 posts · 32 votes
    8y
    Originally posted by @Brie Schmidt:

    @Brian Garrett - Understanding DTI is easy. Take the average of your last two year's reported AGI and divide that by 12. For example let's say 2016 was $100k and 2017 was $140k - your average is $120k - or $10k a month. Take that times 45% and that is your max payment including debts. So in this scenario it is $4,500

    A good ballpark P&I payment per month for every $100k you finance is:

    FHA - $575

    5% Down - $550

    20% Down - $500

    So, if you are planning on doing a 20% conventional loan your P&I is about $500 for every $100k you finance.  So if you lease a car at $250/mo that takes away $50k in your approval.  A $500/mo car payment = $100k less approval.  

    So Assume $4,500 is your max DTI, No debts, and Taxes and Insurance are $1,000 / mo then your can have a $700k loan with the 20% down program ($4,500 - $1,000 = $3,500 / $500 = 7 * $100k)

     Thats great info Brie! 

    0Reply
  • Ernie V.
    Rental Property Investor · Milwaukee, WI · Member since 2014 · 63 posts · 16 votes
    8y

    If you marred, and your spouse not involved in real estate, she can lease car for you.

    0Reply
  • Brian Garrett
    OP
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    8y
    Originally posted by @Ernie V.:

    If you marred, and your spouse not involved in real estate, she can lease car for you.

    I’m single and don’t have anyone else I can put the lease under besides possibly one of my businesses.

    1Reply
  • Marcus Johnson
    Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes
    8y
    Define a $5000 used cameras going to set you back you’re already writing a very thin line financially. In my opinion you’re just justifying having a new car again.
    0Reply
  • Marcus Johnson
    Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes
    8y
    Let me try that again my spellcheck on my phone is terrible. If paying $5000 in cash for a used Camry is going to put a huge damper in your finances you’re already walking a fine line. Again I think you’re just making excuses to buy a New car.
    2Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    8y

    @Brian Garrett I think @Steve Vaughan had it right, just buy something with cash and problem solved. I understand you are trying to free up cash, but you could buy a good used car for $10,000 or you could lease for 36 months for $277 a month. At the end of three years your cash ends up the same. The differences is if you buy, then you probably have a car worth $6000 versus leasing you have $0 value and need to get another lease.

    If you are the type that needs to drive new or fancy cars, then a lease probably does make sense. If you can drive an old car to save cash, then you will make out better financially. It is just a matter of your personal choice.

    2Reply
  • Bradford Clark
    Charleston, WV · Member since 2017 · 113 posts · 50 votes
    8y
    Unless it’s an ego thing or you feel you need to impress then you should buy a used Honda or Prius cash. If you can afford it, then no worries on credit. I bought a little civic to run errands to save on gas and wear and tear on my SUV
    0Reply
  • Cara Lonsdale
    Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes
    8y

    I'm not sure when the last time any of you bought a used car was, but there is nothing decent that you can pick up for $2K-$3K.  A car like that will spend alot of time in the mechanic's and/or won't be pretty inside or out.  We are just getting ready to list my daughter's 1997 honda accord that she used all through high school and college.  It runs, it has AC, but that is about all it has going for it.  It is a hot mess to look at.

    Going from a luxury vehicle to a broke college student status might be a little harder to do than you think.  And it really has little to do with ego, but rather practicality.

    I think you are onto something by looking at options where your business leases the car from you.  I would say purchase a decent car for cash (15K), and set up a lease that you business pays you for use of the car.  Not only will you solve your car problem, but you will create more income for yourself to apply toward your personal finances, which currently show low on paper.

    Leasing a car to your business is legit, and can provide some great tax benefits.  Run it by your CPA and see what they think.  I think this is the best solution for what you are looking to achieve.

    Best of luck to you!

    1Reply
  • Roy Hill
    Realtor · Nashville, TN · Member since 2017 · 4 posts · 2 votes
    8y
    Brian, it's great that you are free of debt with a high credit score! The best thing to do in this situation is buy a vehicle cash. Anything debt will increase your DTI and decrease your buying power. i have 7 years of underwriting experience. The reason you are getting conflicting information is because they don't know without entering all information into an automated system. They need much more information than you can give them at this point. The only way to get a solid answer is to find the property, let them pull your credit, and analyze your income documentation. Loan officers and bankers have a hard time saying "I don't know" which is why you are getting different answers. My advice is to buy a vehicle cash and don't mess with your dti at this point. Once your real estate deal is done.. sell the car if you dont like it.
    1Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    8y
    Originally posted by @Michelle Verdugo:

    Interesting thread. Have learned a lot. I don't like the idea of a cheap car - how does that effect my personal brand? I'm only half joking on that point. 

    Just speaking to the 'personal brand' of what you drive.

    I was having breakfast with a long-time seller and lender and now friend of mine a couple years ago. He's 80 now and we 1st met in '05 when he was selling my now favorite 7-plex of townhomes by owner. He has since sold me 2 other homes on terms and lent me over $500k personally as a private lender.

    Anyway, in 2015 at that breakfast he brought up the 1st car I rolled up in when we met in '05. It was a multi-colored Geo Metro with no front bumper and a wired down hood and cracked windshield. 10yrs after the fact he remembered that car.  

    He knows that cars eat wealth. To him I am a guy that will never waste a cent on a car payment and am worthy of large loans with great terms.  My multi tenants never even ask if I own the buildings because of my cars.  They feel sorry for me when I roll up and work on my properties and have given me tips before when I work in their units.  They are extremely loyal to 'poor' Steve that takes such good care of us but can only afford a beater.  That's my 'personal brand' to tenants and it's worked great for 15 years so far. We have since moved up in car for personal use of course, but still have the LL work van. 

    So, unless you are a realtor, I recommend the ugly head-turner. Banks and business associates like it, too.  On my PFS, it stands out when vehicle value is jaw-droppingly low.  A banker once told me I am his favorite type of borrower with lots of RE and very little depreciating 'assets'.

    5Reply
  • Curt Smith
    Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
    8y
    you can always do portfolio loan higher interest rate be and higher down but it doesn't depend on dti. ask in your local reia for portfolio lenders. everyone here should be a member of a reia Angel Oak lima one find local loan brokers that usually broker all sorts of lenders, HML to portfolio (non dti based 30 yr)...
    0Reply
  • James W.
    Minneapolis, MN · Member since 2017 · 353 posts · 223 votes
    8y
    Originally posted by @Cara Lonsdale:

    I'm not sure when the last time any of you bought a used car was, but there is nothing decent that you can pick up for $2K-$3K.  A car like that will spend alot of time in the mechanic's and/or won't be pretty inside or out.  We are just getting ready to list my daughter's 1997 honda accord that she used all through high school and college.  It runs, it has AC, but that is about all it has going for it.  It is a hot mess to look at.

    Going from a luxury vehicle to a broke college student status might be a little harder to do than you think.  And it really has little to do with ego, but rather practicality.

    I think you are onto something by looking at options where your business leases the car from you.  I would say purchase a decent car for cash (15K), and set up a lease that you business pays you for use of the car.  Not only will you solve your car problem, but you will create more income for yourself to apply toward your personal finances, which currently show low on paper.

    Leasing a car to your business is legit, and can provide some great tax benefits.  Run it by your CPA and see what they think.  I think this is the best solution for what you are looking to achieve.

    Best of luck to you!

    I picked up a 2008 Honda Pilot with 180k miles in great shape for my wife for $2,980.  The seller had it priced at half of the value and just needed to let it go.  She really didn't know what it was worth but posted it on facebook and I was fortunately the first one to reply back.    Even if the car only last a few years, it will be significantly cheaper than losing $3,000+ a year in depreciation.  My work truck is a 2010 F150 fleet vehicle that I picked up with 190k on it for $3,500 a year and a half ago.  I have not had to do any repairs for either vehicle but even if I do, it will likely be cheaper than a year of car payments.  Deals on cars are out there just as much as deals on homes.  You just need to look for them or know a deal when you see it.  I have purchased new and luxury vehicles in the past.  I can afford a nice vehicle, but don't care to spend money on depreciating assets at this time.

    In regards to buying a car and having the business lease it, I am not sure how this constitutes additional income. It may raise questions as to why he is getting lease income from a business if he claims it as an income source when applying for a loan but I am not sure a lender will count it towards his DTI. With 1-4 family conforming loans, the net impact of the property based on the fannie/freddie calculation will be looked at as an increase to income or an increase in expenses on his DTI. It doesn't add XX to income and X to expenses the way consumer debt is calculated.

    I am not a CPA, but my understanding is that If he has a pass through entity for his business, the income he claims will be offset by the expense he claims as part of his business.  It will have a net effect of $0 when a lender is using his tax returns to review his income.  

    0Reply
  • Marcus Johnson
    Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes
    8y
    @cara Lonsdale I sold my 2007 Mitsubishi Gallant that was in great shape I ddidnt have any repairs for 5500 and the car is still on the road two years later and is perfectly fine.
    0Reply
  • Cara Lonsdale
    Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes
    8y
    Originally posted by @James W.:
    Originally posted by @Cara Lonsdale:

    I'm not sure when the last time any of you bought a used car was, but there is nothing decent that you can pick up for $2K-$3K.  A car like that will spend alot of time in the mechanic's and/or won't be pretty inside or out.  We are just getting ready to list my daughter's 1997 honda accord that she used all through high school and college.  It runs, it has AC, but that is about all it has going for it.  It is a hot mess to look at.

    Going from a luxury vehicle to a broke college student status might be a little harder to do than you think.  And it really has little to do with ego, but rather practicality.

    I think you are onto something by looking at options where your business leases the car from you.  I would say purchase a decent car for cash (15K), and set up a lease that you business pays you for use of the car.  Not only will you solve your car problem, but you will create more income for yourself to apply toward your personal finances, which currently show low on paper.

    Leasing a car to your business is legit, and can provide some great tax benefits.  Run it by your CPA and see what they think.  I think this is the best solution for what you are looking to achieve.

    Best of luck to you!

    I picked up a 2008 Honda Pilot with 180k miles in great shape for my wife for $2,980.  The seller had it priced at half of the value and just needed to let it go.  She really didn't know what it was worth but posted it on facebook and I was fortunately the first one to reply back.    Even if the car only last a few years, it will be significantly cheaper than losing $3,000+ a year in depreciation.  My work truck is a 2010 F150 fleet vehicle that I picked up with 190k on it for $3,500 a year and a half ago.  I have not had to do any repairs for either vehicle but even if I do, it will likely be cheaper than a year of car payments.  Deals on cars are out there just as much as deals on homes.  You just need to look for them or know a deal when you see it.  I have purchased new and luxury vehicles in the past.  I can afford a nice vehicle, but don't care to spend money on depreciating assets at this time.

    In regards to buying a car and having the business lease it, I am not sure how this constitutes additional income. It may raise questions as to why he is getting lease income from a business if he claims it as an income source when applying for a loan but I am not sure a lender will count it towards his DTI. With 1-4 family conforming loans, the net impact of the property based on the fannie/freddie calculation will be looked at as an increase to income or an increase in expenses on his DTI. It doesn't add XX to income and X to expenses the way consumer debt is calculated.

    I am not a CPA, but my understanding is that If he has a pass through entity for his business, the income he claims will be offset by the expense he claims as part of his business.  It will have a net effect of $0 when a lender is using his tax returns to review his income.  

    This is actually a common practice. If he purchases a car outright, and leases it to his business for the portion of the car use that the business represents, then his personal income will be increased on his taxes for DTI purposes (therefore extra income). The lease payment is a deduction for the business.

    It depends on how his business is set up and taxed, whether it impacts his personal finances or not. A corporation, or LLC with it's own tax ID # is sole and separate from personal finances and does not pass through to personal income, so the two are completely separate. I read in the OP's post that he didn't make much on paper personally, so my assumption was that he was trying to purchase based on his own personal finances, and not a combination of the two. I could be wrong there.

    Either way, it is just another option to consider.

    0Reply
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