Rental Property Investor · Jersey City, NJ · Member since 2019 · 7 posts · 1 vote
Hi all! Some help if you have...So I decided to take the conventional route and managed to save up a 20% down payment on the 150k-250k range of multifamily properties(2-3 unit preferably).
The savings actually comes from the work I’m currently doing to help with the covid efforts or else it would take me about another year to save up this money again due to the good debt I have right now(5% interest on student loans).
To get specific I’m looking at a 35-40% debt to income ratio right now solely from my student loans unfortunately. I’ve yet to take the action to get pre-approved because of this issue. How much of a problem is this usually when attempting to get a lender? Are there any other options?
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
6y
That's definitely going to be an issue, @Raeven S. Reivers. Most lenders don't want total DTI to be above 45-55%. That doesn't give you a lot of room to work with. You should still try to get pre-qualified, it can't hurt. Depending on the loan program, the bank may count part of any potential rental income.
If you run into trouble, it may be worth considering a commercial loan. Your personal credit still matters, but a commercial lender will be more concerned with the property's performance, specifically it's Debt Service Coverage Ratio. Terms won't be as good, though...
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
6y
That's definitely going to be an issue, @Raeven S. Reivers. Most lenders don't want total DTI to be above 45-55%. That doesn't give you a lot of room to work with. You should still try to get pre-qualified, it can't hurt. Depending on the loan program, the bank may count part of any potential rental income.
If you run into trouble, it may be worth considering a commercial loan. Your personal credit still matters, but a commercial lender will be more concerned with the property's performance, specifically it's Debt Service Coverage Ratio. Terms won't be as good, though...
Investor · Allentown, PA · Member since 2019 · 43 posts · 24 votes
6y
@Raeven S. Reivers I'm actually running into the same issue as you right now. Here are a few things I've thought of that could be potential solutions.
1. Partner with someone who has good credit
2. Have a parent/other family member be a co-borrower. Similar to #1, but you are putting up all of the money/work and they are doing you a favor letting you use their credit. I believe it's possible to refinance later down the line and take their name off of the loan. If I'm wrong on that hopefully someone will correct me. Most people here seem to recommend against mixing family and business, but if you're confident in your analysis and know that this deal is going to cash flow, you can make it work.
3. As Jaysen said above, talk to some lenders in your area to see if they do commercial or portfolio loans, where they can be a little more creative than lenders who have to stick to conventional loan standards.
Rental Property Investor · Jersey City, NJ · Member since 2019 · 7 posts · 1 vote
6y
@Jason Reynolds appreciate it! Those are awesome ideas. A co-borrower seems pretty likely for me right now. It’s probably the next property I find that’s going to be an issue but hey that’s what being creative is all about.
Rental Property Investor · Jersey City, NJ · Member since 2019 · 7 posts · 1 vote
6y
@Derrick Dill Appreciate the help. I actually did try these points and they do work! Did the balance transfer with smaller amounts and took care of every other debt.
It’s a 25 year loan at the lowest rate which is embarrassingly still kicking my butt. Might be time for another job.
Investor · Sacramento, CA · Member since 2016 · 34 posts · 16 votes
6y
If the property you are looking to purchase cash flows, then it should be reducing your DTI on paper, not adding to it. So you should be fine with 35-40% DTI. Just be wary of it in the future as you get more properties and if those properties are a loss on paper (tax write offs), then you may eventually run into DTI issues. If so, refi and consolidate as much as you can, and eventually you may have to go the commercial route.