Debt to Income Ratio :: Question

8 Replies

So I'm quitting my job next month. Will not have a W2 anymore. Intend to take a nice nest egg of cash and turn full time to real estate investing over next two or three years, likely focused on SFR and small multifamily. I'm concerned that without a job, and currently with only 30K NOI on rental properties, that I won't qualify for loans on investment properties. For example, I just got turned down for conventional loan because of DTI on the following:

- 300K purchase price on turn-key SFR

- offered 60K+ down payment

- 800+ credit score

- nice looking bank account

- experience buying and selling investment properties

- no job and only 30K/yr NOI on rentals

- all around good guy  :D

An extra point or point and half might be okay, but 3-4+ extra points doesn't make sense. 

Anyone have any thoughts on how to get around this DTI issue? Any and all comments and insight is appreciated.

Thanks!

2 thoughts for you. Both are Non-QM loans, or portfolio loans, same same. 

The 1st is a bank statement loan. They will look at 12 or 24 months personal or business bank statements. If personal, they will determine your income is 100% of all deposits (except one off deposits that are out of the ordinary). If they are business bank statements, they will determine your income is 50% of all normal deposits (not counting one off out of the ordinary deposits).

2nd is a cash flow loan. Meaning they don't care what your income is and will not call for any income docs, they only care that the rents on the property are equal to or as high as 25% more than the new mortgage payment. 

The bank statement loan will get you slightly better rates than the cash flow loan. But both should be about 2% higher than a conventional Fannie Freddie rate. 

It will get you off the ground over the next 2 years. Once you have built up enough rental income to qualify for Fannie Freddie again, then you can refinance them to lower rates at that time, but it doesn't stop you from acquiring more right now to build your wealth and retirement. 

I hope this helps?

As mentioned you would be able to look into a NON-QM loan or a portfolio loan. 

The rates are slightly higher but the nice thing is that as you build your portfolio you will build up your income from rentals and potentially be able to refinance the loans down the road into a conventional product with a lower/standard rate. 

Just make sure that when you are out looking at properties that you are running your numbers with the correct rate otherwise it could make the deal turn from good to bad when you run numbers from a low rate to a rate that is higher as that can be a big difference in cash flow. 

I hope this helps. 

@Michael Glist

Thanks Michael.

I was getting close to tapping out on the number of conventional loans allowed anyway. Time to begin speaking w portfolio lenders. Have calls set up w two for tomorrow.

Do you know if nonQM loans require a seasoning period for property recently purchased w cash?

Hey @Ladd Austere I have access to lenders that do no income, no asset and no tax verification lending. So it is best for me to tell you to quit your job and then come to me...

What's best for you is not quitting your job...yet. Buy and close on the properties you are looking at and then decide to quit. This will save you thousands in interest. 

I never liked my job when I was working and starting out as an investor. However it allowed me to buy and refinance properties with ease at good rates. 

Now that I own my own business I can still refinance my portfolio but it is much tougher. If you have no income at all you are forced into the higher rates. 

Up to you either way just something to consider. Good luck!

Jason

At an absolute minimum I would say to close your next investment property before quitting the W2 job. Doing that alone will help you advance your portfolio, increase your income, and save you time and money. Personally, if I were in your shoes, I would map out a plan to buy all the investment properties you can as fast as you reasonably can while still at the W2 job. Since you have the cash on hand for down payments, its really just a matter of time and scheduling before you either have enough rental income where this is not an issue, or you run out of cash to acquire more.