Debt to income ratio won't allow us to qualify for conventional.

7 Replies

Greetings,

My wife and I purchased our first rental this spring with conventional financing. It's occupied and doing fine. I've talked to our mortgage broker about securing a loan for a second property, and according to her, with our DTI ratio, we only qualify for about a $70,000 mortgage. That isn't enough to purchase anything in this area. (I'm not interested in investing out of the area at this point, my work allows me the ability to self-manage and do maintenance myself, and I'd prefer to stay local, at least for a few years.)

I'm the only one working for now, and make a total of around $60k, with some of that being from a part time business I run. The debt consists of our personal mortgage, the rental mortgage, and a HELOC (that was used for the down payment on the rental). No other debts at all.

I've found a property that pencils out and is something we are interested in pursuing, the price is about $150,000. We have about 60,000 left available on the HELOC, however, I wouldn't want to tap into anymore than about 40 of that, in order to leave a pretty significant buffer in the event that something goes sideways. We do have some money in our retirement accounts. Does anyone have any suggestions on where to go from here? I suppose the next step would be to approach local banks and seek out a portfolio loan, am I going to run into the same income dilemmas there? I don't want to overextend myself and let leverage kick my backside, but it seems that without my income coming up drastically, we probably won't qualify for another conventional for many years to come.

I'm generally pretty slow at work during the winter, and have considered trying to do a flip or BRRRRRRRR over that time to either get a lump sum of cash to roll into another property, or have something to hold longterm with some built in equity.  Even with one of those strategies, I believe I'll run into the same issue.

Thanks for any ideas...

@Justin Knighten You can definitely try getting a HELOC on your rental property. PenFed does them. I’m applying for one with them soon. Another idea: do you have a family member that’s wanting to do real estate that can go on the mortgage with you? That way the DTI is lower. You’d have to share some profits but if that’s your last option and they just get a piece of the pie for sharing their name on the mortgage with you, then that’s a win win for both parties.
Originally posted by @Justin Knighten :

Greetings,

My wife and I purchased our first rental this spring with conventional financing. It's occupied and doing fine. I've talked to our mortgage broker about securing a loan for a second property, and according to her, with our DTI ratio, we only qualify for about a $70,000 mortgage. That isn't enough to purchase anything in this area. (I'm not interested in investing out of the area at this point, my work allows me the ability to self-manage and do maintenance myself, and I'd prefer to stay local, at least for a few years.)

I'm the only one working for now, and make a total of around $60k, with some of that being from a part time business I run. The debt consists of our personal mortgage, the rental mortgage, and a HELOC (that was used for the down payment on the rental). No other debts at all.

I've found a property that pencils out and is something we are interested in pursuing, the price is about $150,000. We have about 60,000 left available on the HELOC, however, I wouldn't want to tap into anymore than about 40 of that, in order to leave a pretty significant buffer in the event that something goes sideways. We do have some money in our retirement accounts. Does anyone have any suggestions on where to go from here? I suppose the next step would be to approach local banks and seek out a portfolio loan, am I going to run into the same income dilemmas there? I don't want to overextend myself and let leverage kick my backside, but it seems that without my income coming up drastically, we probably won't qualify for another conventional for many years to come.

I'm generally pretty slow at work during the winter, and have considered trying to do a flip or BRRRRRRRR over that time to either get a lump sum of cash to roll into another property, or have something to hold longterm with some built in equity.  Even with one of those strategies, I believe I'll run into the same issue.

Thanks for any ideas...

Assuming you didn't quit your job or get a $500/mo car loan, your DTI will work itself out when you find an investor friendly lender that's including the cashflow from the property in the mortgage math, assuming you're buying cashflow positive real estate. Go to your local REIA meetup, ask who is doing their mortgages.

There isn't enough equity in the current rental to get a HELOC. We just purchased it, and only put 25% down.

I didn't quit my job, but my wife did, to stay home with the kids.  would this "investor friendly" lender still be a conventional mortgage, or am I looking for a different product?

Most lenders want to see that rental income on 2 years of tax returns before they'll count it, if it is your first rental. Good luck finding a friendler lender, otherwise you'll have to wait out the 2 years, or earn more money at work.

Originally posted by @Justin Knighten :

There isn't enough equity in the current rental to get a HELOC. We just purchased it, and only put 25% down.

I didn't quit my job, but my wife did, to stay home with the kids.  would this "investor friendly" lender still be a conventional mortgage, or am I looking for a different product?

Your eagerness/impatience to go go go might get you into financial strife, if you don't get "free" equity with each buy!

ie. Gotta get bargains! ie. There should be "enough equity in the current rental" (even at closing)! 

Kudos for your your wise ambition; taking action, and, asking BP for ideas.

My theory is that a well-bought, strong-earner investment should help reduce your DTI! Welcome to BP. All the best...