Does seller financed property affect DTI for conventional loans?

Question

I am going to purchase a rental and the seller is willing to carry the loan. I am wondering if a seller financed property will affect my DTI for obtaining conventional Freddie Mac and Fannie Mae loans. Does anyone have any insight?

Chris Szepessy · Answer

@Matt Wells We have 2 seller financed mortgages and my bank counts them towards my DTI. Even if they aren’t on your credit report, they will be on your tax returns, assuming you are claiming the income….which you should be.

Jonathan Taylor · Answer

@Matt Wells will the seller financed loan report to credit? If the seller is using a servicing company, then yes, it would. But if its a hand shake deal and you pay him on time and does not report to credit it wont. Obviously you will still pay him but when a lender looks at your file and doesnt see debt obligations for a property and you vest the property in an LLC, you may be able to skirt around this one. Others here have different opinions but how you file the paperwork would determine this.

Tom S. · Answer

@Matt Wells  With a number of seller financed mortgages that I've done as a buyer, I can confirm it will impact your DTI.  They just manually adjust for the numbers.  As a rental property, the mortgage interest will still show on your Sch E of your taxes, plus you're supposed to disclose everything when applying for a conventional mortgage.

Eric Veronica · Answer

If you are the borrower then yes, the payment will impact your debt to income ratio.

Matt Wells · Answer

@Andrew Postell I'm sure you can help me with this one.