Rental Property Investor · Irving, TX · Member since 2010 · 107 posts · 34 votes
Hi,
Does anyone know how lenders factor in S-Corp loss for DTI ratio calculation? Do they take the loss, divide by 12, and add it to the debt portion of the ratio?
My apologies in advance if this has been asked before. I can't find any answers with my Googling skills (or lack thereof :)...
Real Estate Investor · Jacksonville, FL · Member since 2012 · 109 posts · 22 votes
13y
Generally they take the loss and subtract it from the income, which is more favorable from a debt to income calculation than counting it as another monthly debt.
It used to be if you were w-2 and you had a side business many times lenders wouldn't know or consider the side business that might be producing a slight loss, but now they want tax returns on most borrowers and thus the side business comes in to play.
Real Estate Investor · Jacksonville, FL · Member since 2012 · 109 posts · 22 votes
13y
The way I typically see an u/w look at this income is as follows:
$5,000 in monthly salary
$500 car payment
$1,000 house payment
Business that loses $6,000/year
$5,000 * 12 = $60,000 - $6,000 loss for $54,000 in annual income or $4,500/month
$1,500/$4,500 33% dti
Doing the other way you would end up with
$5,000/month income
$2,000/month liabilities
$2,000/$5,000 = 40% dti
Hope that helps. This is generally how I have seen it done but it could be at the underwriter's discretion and they are going to take into account the overall strength of the customer.
Chapel Hill, NC · Member since 2013 · 53 posts · 18 votes
13y
I just got bit hard by this because I've had a business with a paper loss for the last two years (not real estate). I make plenty on my w-2 yet the business loss has now been subtracted and they will only qualify me for a small loan even though the house has a leased tenant.