DTI Issue. How to convince a bank to do a loan?

4 Replies

Can I convince banks/credit unions to use boarder income?

goals and story:
I want to house hack a large house (5000sqft) on the beach (Bay Area,California).
I found a great place. I would move in part of it (1500sqft), and rent the rest out on airbnb (3500sqft).
The rents will easily pay for the mortgage and then some.

If I were to count the future rental income (even very conservatively), my DTI would be ~20%.

However, banks do not count STR income towards my DTI on the mortgage application (they count it as boarder income, aka $0). Since they only use my W2, my DTI is way too high (65%).

What kind of products/banks could be willing to do this?


Type of property:
Single family home
Location of property:
Bay Area, California
Purpose of financing:
purchase
Type of financing sought:
Any. APR <4.5%.
Current or prior ownership of real estate:
own 1 house. currently on short term rental as well.
Occupancy
: owner occupied (1500sqft) with short term rental for the remaining (3500sqft)
Value of property at present and/or your offer price:
$4,000,000
Anticipated or actual appraisal issues
: no
Current rents per month:
$25k
Fair market rents per month
: $30k
Down payment or equity:
I have $1m in the bank to put towards downpayment. More saved for reserves.
Source of down payment funds:
own funds
Income Source:
Salaried/hourly W2. This would not be enough to qualify for the full mortgage (DTI would be through the roof).
FICO:
Excellent. 800+
Credit issues:
None.

LOL  If you are looking for a conventional mortgage, no amount of "convincing" will help. They have to follow the rules set by Fannie.  If you are instead getting a bank loan, then a good argument might help.

In either case, typically 75% of the rental income will be added to your income for qualification.  If the property is currently empty, you may need a short-term private loan until you have renters and can refi into a longer-term loan.

Originally posted by @Greg Scott :

LOL  If you are looking for a conventional mortgage, no amount of "convincing" will help. They have to follow the rules set by Fannie.  If you are instead getting a bank loan, then a good argument might help.

In either case, typically 75% of the rental income will be added to your income for qualification.  If the property is currently empty, you may need a short-term private loan until you have renters and can refi into a longer-term loan.

The issue here is they do not count ANY income on an owner-occupied SFR (purchase or refinance).
They would do the 75% of lease or 2y of tax returns on a multi-family, for the non-occupied units. 
But on an SFR, they count none of that. $0. 

So even if I get private/HML for the purchase, a refinance will run into the same issues.

We are in the jumbo market here. About $3m loan with $1m down payment (25%). I was under the impression some lenders were doing portfolio loans (own guidelines, often similar to Freddie/Fannie, but maybe not as strict?) with 30y fixed rates in the 3-4%.

 

1. you can not get hard money for an owner occupied home, so that thought is out. 

You could possibly do a bank statement loan if that will help your debt ratio. You can also do a bank statement and asset depletion loan combined into 1 loan to help get the DTI where it needs to be. Outside of that, there is no loan that could work for you due to the fact that you will owner occupy the home.

If it were non-owner occupied, you could do a DSCR loan, or a Debt Service Coverage Ratio loan. This simply means that they look at the long term rents on the property, and so long as it covers the PITI mortgage payment on a 1:1 ratio up to a 1.15:1 ratio, meaning the rents would either be equal to or 15% higher than the PITI mortgage payment. Again, this is only for non-owner occupied loans.

That is the extent of the loans that can be considered in this scenario. 

I hope this helps?