I appreciate any lenders taking the time to read and respond to my post. I work with multiple local banks who underwrite differently, please consider the specific set of facts that I provide for this hypothetical. I’m looking for information regarding how and underwriter would view these circumstances most favorably.
Hypothetically say I have 100k in cash, a 50k HELOC on my primary residence, & 50k that can borrowed from a 401k. I am going to finance the purchase and rehab of a fourplex that will cost 120k. The bank I want to work with (because they offer the highest LTV on the cash out refi) will not count the income from this property nor from another fourplex that I recently completed because we have owned them for less than 2 years. Because they won't count the income on these two properties, my debt to income ratio might look high. I've read that using my 401k loan will not increase my DTI ratio, but it will lower my assets. If I use my HELOC I believe it will increase my DTI, but I'll have more cash and assets to show the bank. If use too much cash that might worry the underwriter. Do they consider that the cash out refi money will be used to consolidate that debit? Any ideas on the best way to utilize these resources in order to have the highest chance of qualifying with this lender?
Hmmm, well number 1, if your bank wont count any income that you recently derived from other properties, then quit using that lender. They are putting you at a disadvantage by not counting the income. As a lender myself, we would count that income, even though it hasn't hit a tax return just yet.
We would take 75% of the gross rents minus the mortgage payment on it. This would result in either a small gain thereby adding to your income or a small loss thereby adding to your liabilities, but it would offset the full amount of the mortgage. This is the standard industry's way of making this calculation.
If your lender is looking at it any different way than what I spelled out, then they are saying, we have overlays and this is the way we calculate it. Thereby artificially giving you a debt ratio problem when you might not have that problem if the industry standard was used?
I would shop around for a new lender. A lot of banks do not like short-term rentals, I am not sure if that is the case, and you also need to make sure you are accounting for rental income correctly to count it towards your DTI.
Either way it doesn't hurt you to shop around and a good lender should be able to explain this to you. All lenders are not equal, and some offer different types of loans that others don't.