Debt to income ratio problems
Portland, OR · Member since 2016 · 31 posts · 8 votes
Applied for a 5/5 ARM with 10% down. But I didn't qualify due to my debt-income ratio. I already own one SFR in Boise plus my primary residence here in Portland, Oregon. So if I could figure this out, I would own a second SFR.
What the lender DIDN’T do was take future rent on the new house into account at all. They also prorated the rent on my Boise house to account for repairs and depreciation, which brought that number down to around $300, although in reality the rent there more than covers the monthly mortgage payment.
And voilà, I don’t qualify! Any tips? I am a school teacher at a private Catholic high school here so not rich, lol. But these sorts of experiences are getting in the way of my millionaire real estate investor status!
Lenders know there are many costs associates with rent properties, even if you don't. That's why they don't include 100% of rental income in calculating DTI. If you want to buy more property the best bet is to reduce your debt.
I'm following Maron. Interested in the outcome of your post. I'm looking for a re-fi of a property I have in Detroit. I had two tenants and one of them just died a few weeks ago. I'm ok on mtge. payment but not on two re-hab cards I used to make the property from a 3/1 into a 5/2. I would be cash flowing with just the mortgage and other expenses but need to pay off the two cards that are costing me 700.00 per month. The property has doubled in value but since I don't live in it, I can't get a heloc but would prefer a re-fi and pay off the cards without additional monthly costs. Looking for creative ways to do it because I want to keep the property and If I flipped it I would have to pay capital gains on it. My two year mark is next March.
@Maron Faulkner Lot's of good conversation on the financing side here so not going there. In the off chance you are not leveraged into just a pension and maybe have a 401k/IRA of some kind, have you considered self-directed to provide for some acquisition capital, thus reducing financed portion. Will be some work with how to properly structure and allocate/disburse revenue's/profit's but it could change the math of it all.
@James Hamling - Thanks. That's an interesting idea. I've heard of folks doing this, but wasn't sure about my particular plan, which is a 403(b) with TIAA. Do you think that is something that might work? It sure sounds interesting.
I'm following Maron. Interested in the outcome of your post. I'm looking for a re-fi of a property I have in Detroit. I had two tenants and one of them just died a few weeks ago. I'm ok on mtge. payment but not on two re-hab cards I used to make the property from a 3/1 into a 5/2. I would be cash flowing with just the mortgage and other expenses but need to pay off the two cards that are costing me 700.00 per month. The property has doubled in value but since I don't live in it, I can't get a heloc but would prefer a re-fi and pay off the cards without additional monthly costs. Looking for creative ways to do it because I want to keep the property and If I flipped it I would have to pay capital gains on it. My two year mark is next March.
@Charlie DiLisio
Interesting stuff. I thought you could get a HELOC on a rental, but maybe not. I had a heck of a time when I applied for a basic HELOC on my primary house back when I bought my first rental - needed to get cash for the down payment. It was a huge hassle. A re-fi is supposed to be the key to everything, right? - but it's tricky with the monthly costs. And you're not the first person who has mentioned the two year mark. Does that mean things get easier when you've had the property for two years and have a that track record?
@Maron Faulkner I have had this issue with large institutions because I am started the self employed journey 2 years ago. However I have a fantastic relationship with a community bank and they lend based on the asset not necessarily my income etc. they do look at it but they mostly look at how that asset is going to preform. Little tip, use the BP Calculators for rental property and print out the nice report at the end to show your homework. Also talk yourself up and really know what you’re talking about (without lying) creat that nice relationship and the sky is the limit!!!
@Tyler Kortz
Ha ha I love it! That's great, I love the idea of developing a relationship with a smaller type bank. That's really smart, and great idea with the printout from the BP calculators. I've used them a lot and the graphs and so forth always look so sharp on my screen, but what a great move to take it to that next step and use them as a visual aid so people understand you're serious and know your stuff.
@Maron Faulkner Lot's of good conversation on the financing side here so not going there. In the off chance you are not leveraged into just a pension and maybe have a 401k/IRA of some kind, have you considered self-directed to provide for some acquisition capital, thus reducing financed portion. Will be some work with how to properly structure and allocate/disburse revenue's/profit's but it could change the math of it all.
@James Hamling - Thanks. That's an interesting idea. I've heard of folks doing this, but wasn't sure about my particular plan, which is a 403(b) with TIAA. Do you think that is something that might work? It sure sounds interesting.
Personally my take and advice is that if you have to jump through multiple hopes while rubbing the belly and patting the head, that's a sign that your probably OVER-leveraging and not in a safe position to be buying/acquiring properties at the moment.
The #1 cause of failure for investors I have seen is the same for EVERY market cycle, and it's over-leveraging, under planning. Your flip and go flop, and survive a-ok if you have contingency planning and funds, without it your selling to a person like me for $0.50 on the dollar because we are awash in capital because of our obsession for contingency planning.
I kid you not, I have a contingency fund for my contingency fund's contingency fund, true story. When plan A goes to hell, I say "ok, B's turn" and than C, D, so on and so fourth. Going to such lengths to acquire a property, your all-in on just 1, and everything must go right or else. No, your not ready, just is what it is, the 2nd best deal you ever have is the one you didn't get and never lost on.
Hmm, interesting perspective. Def agree about contingency planning and things going poorly. Like you need to dot every i and cross every t when planning or even executing - don't push "send" till you're 110% sure it's right. Plus I looked at using any retirement funds and have concluded that's not the best idea for me.
just an update, my mortgage company who got me my first Boise house is preapproving me for 320k with 15% down, which is doable. They were great to work with before, didn't know they could let me do 15% down, so I'm now...cautiously optimistic...
@Maron Faulkner that's great! I recently talked with my lender and are working on 2 deals one at 15% down the other (a BRRRR) with $0 of my own money. After these two deals are complete and stabilized we will be able to do our properties loving forward at 10% down with a 4.25 rate.
So beneficial just to have regular conversations and build that relationship with the entire institution as well as the primary lender (in my case VP of the bank) and just ask the questions. Worst they say is “no” or “these are our minimum requirements” which to be honest I would be totally fine if they stuck to the 20% & 15% minimum but hey if I can leverage more of their money and keep mine (as long as the asset performs well) I’ll do it. 💪🏼
just an update, my mortgage company who got me my first Boise house is preapproving me for 320k with 15% down, which is doable. They were great to work with before, didn't know they could let me do 15% down, so I'm now...cautiously optimistic...
Hey Maron, would like to connect with your lender if you're willing to share! Always looking for a good lender in the Boise area.
@Maron Faulkner I’d suggest a different lender. I’m buying my second multi family right now and in both cases the bank took into account the leases and the income minus the new mortgage payment and some formula for reserves for expenses leaving my cash flow for income toward my debt to income ratio.
This is a small bank I have banked at for 25 years. I probably could have gotten a better rate but I’ve had no hassles and they do not sell off their loans so I will always be able to speak with someone in person if need be.
I also do not make a high income as I am in social work but have no degree in it.
@Maron Faulkner
I just had two lenders deny me because my DTI was too high at 53%. I've got a third lender working on it right now and getting a little creative. I signed a contract on another rental house to buy. So I hope he can come through! PM me if you want his contact info. He's an investor like us so he knows the game.
Are these asset based loans?
@Maron Faulkner
I just had two lenders deny me because my DTI was too high at 53%. I've got a third lender working on it right now and getting a little creative. I signed a contract on another rental house to buy. So I hope he can come through! PM me if you want his contact info. He's an investor like us so he knows the game.
Are these asset based loans?
Freddie/fannie loans. I've spent over 100k in the last year on a few rehabs. My tax returns show me with big losses on a few rentals. My first two lenders took a good look at my DTI and were a little concerned about it. However, I found a new lender that has his underwriters look at the lease agreement rent amount vs all the $ I've dropped on them the last couple years. He's an investor himself so he knows the game
Hey Alecia,
Great minds! I went back to the lender who did my first Boise rental, and they are pre-approving me for 320k with 15 % down. As you mentioned, the rate might be a little higher, but they are so easy to deal with it's totally worth it.
Love that you do social work - I have some friends in that field. Love what they do but can be challenging...
Maron Faulkner
@James Hamling
Hmm, interesting perspective. Def agree about contingency planning and things going poorly. Like you need to dot every i and cross every t when planning or even executing - don't push "send" till you're 110% sure it's right. Plus I looked at using any retirement funds and have concluded that's not the best idea for me.
@Eric Giovannucci
Hi Eric, of course! I've been working with Rachel Dalton at Waterstone Mortgage
I will PM you with their info.
They have sure been easy to work with. Last purchase I worked with Barb Perry and Carli Oedling, but Barb is trying to retire and Carli has been promoted, but Rachel has been great so far.
Maron