Question about DTI and joint debt

2 Replies

I have a DTI question. I co-own two properties with joint mortgages and we need to refinance to separate the properties and mortgages. The plan was for me to refinance the property I'm keeping, then the other owner will refinance after the 3 day period.

My DTI will be very low - maybe 15%. The other owner will be at about 33% DTI after the refinancing

Days before the planned closing the underwriter recalculated my DTI using only my salary and the full payment for both properties. The reason they gave is that there is risk during that 3 day period. I get that but the 2nd property will still be a joint liability at that point so they should also be using the co-owner's income in the calculation.

How can I find out more about the rules for calculating DTI when the debt is a joint loan?

@Georgina Prager the answer here is STRONGLY dependent on what type of loan you are using on the refinance.  For example, a Fannie Mae or Freddie Mac loan won't care that the loan is a "joint" loan.  They will hold the ENTIRE payment against you.  One common challenge that people run into is that they partner on a property using a Fannie/Freddie loan and then split the profits.  So if that Fannie/Freddie loan is held against you in full....and you split the profits....then you will likely be losing money based on how they calculate income.

But a commercial/portfolio loan will calculate income differently.  They don't care about these things and usually base the income on the property itself.

I hope this makes sense but feel free to ask anything additional.  Thanks!

Originally posted by @Georgina Prager :

I have a DTI question. I co-own two properties with joint mortgages and we need to refinance to separate the properties and mortgages. The plan was for me to refinance the property I'm keeping, then the other owner will refinance after the 3 day period.

My DTI will be very low - maybe 15%. The other owner will be at about 33% DTI after the refinancing

Days before the planned closing the underwriter recalculated my DTI using only my salary and the full payment for both properties. The reason they gave is that there is risk during that 3 day period. I get that but the 2nd property will still be a joint liability at that point so they should also be using the co-owner's income in the calculation.

How can I find out more about the rules for calculating DTI when the debt is a joint loan?

To summarize, parties 1 and 2 jointly own and have mortgages on properties A and B. And the goal is for party 1 to refi prop A into just their name, and for party 2 to refi prop B into just party 2's name. But on each individual application, party 1 is getting hit with the PITI of both prop A and B, and the same is true for party 2. But neither party has sufficient income to debt service both A and B at an acceptable DTI, so you're in a chicken-or-the-egg quandary. If that's not correct, please let me know.

If it is... we see this here in the Bay Area where people have cosigned b/c of affordability issues.

It's possible. Both refinances have to be done concurrently, at the exact same time. They need to be with the same loan originator, same lender, same underwriter, etc. You and your buddy need to be very much on the same page to finalize the amicable "divorce" of your joint ownership. That's the only way I've seen it done successfully. Underwriters are not going to take another underwriter's word for it, the same UW needs to be working both files.