I'm seeking advice on how to lower my debt to income. We have a couple of investment properties with owner finance terms that include a pretty high monthly payment. I'm looking for a way to eliminate this issue when it comes to buying our personal house and keep it from affecting our ratio. Assuming the seller (note holder) is flexible on mobility, what are some known ways to remove these properties from future consideration by a creditor?
Will a land trust or living trust work? Or are there other alternatives?
Im open to any options and would like to hear about various methods.
Since the entity holding title would be a disregarded entity (I believe) that none of those will eliminate the cost from your DTI. That said, are you sure it even matters? Income properties that cash flow will lower, not raise your DTI. The lender (per conventional guidelines) should take the net result of each rental and add or subtract that from your income. They should not be adding all income and subtracting all expenses directly to you for DTI calculations.
Since the entity holding title would be a disregarded entity (I believe) that none of those will eliminate the cost from your DTI. That said, are you sure it even matters? Income properties that cash flow will lower, not raise your DTI. The lender (per conventional guidelines) should take the net result of each rental and add or subtract that from your income. They should not be adding all income and subtracting all expenses directly to you for DTI calculations.
Like @Matt Devincenzo said, cashflowing real estate helps your DTI, it doesn't hurt it.
Quick hack, to answer your question directly, is to note that we just use the monthly payment for DTI. So if the private lender lets you pay some upfront points/fees, or take a modestly higher interest rate, in exchange for offering you an interest only monthly payment, that would improve your DTI, relative to having the monthly payment be a fully amortized P&I payment.
Have you even determined that your dti is an issue? Are you calculating your dti, correctly (yeah semi-rhetorical question)?
For rentals, the profit/loss from them is recalc'ed on a 75% of the rent (not the income). So, sometimes it can hurt your dti. However, it doesn't matter if the montly payments are high, it matters what are you also getting for rent.
Honestly, I don't believe there is a great way to do what you are asking. You can't just hide your income/expenses when getting a loan. It will be, or certainly should be, on your tax return somehow.