High DTI and How to Get over It For A HELOC (W2 is a trap)

Kansas City, Missouri
Creative Real Estate Financing
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High DTI and How to Get over It For A HELOC (W2 is a trap)

Jacob Trogan
Lender · Kansas City, MO · Member since 2016 · 142 posts · 71 votes

I am a little frustrated here but I wanted to get advice on how any of you may overcome DTI limitations when applying for loans or HELOC/LOC?

I applied for a HELOC and the equity is there and my credit is 750+ but the banks look at DTI also - I should have known this since I saw it with many investors I spoke to as a traditional lender. This is why I moved into hard money but basically I have a small base salary that I specifically negotiated to qualify for stuff like this but the bank qualifies you based on if you max out the LOC which if I did it would put me at 50% DTI or so with just my mortgage and HELOC. I can afford this easily since my mortgage is well below my means taking into account commission and other incomes that also do not have 2 years of history but my problem is just that I do not have two years of history. I understand due to working in Hard Money I can put debts into an LLC but my primary residence is in my personal name. Also something to note I have more liquid assets I can show than the LOC I am asking for... kind of frustrating...

Anyways would I be able to move this primary into an LLC? So the mortgage would not be looked at as my personal debt, I am guessing not... Or do any of you know of banks who would look at this situation more comprehensively... I applied with 5 banks/credit unions or so just to compare my options and have gotten denied by 3. Since it is due to DTI problems I believe the same fate will happen with the other 2.

As for the title. I love w2 income and it is a tool to qualify for the best loans from Fannie/Freddie but being limited to it and sticking to that method seems to put people in a very narrow mindset of following what lenders tell them. They think there is no way to overcome qualifying for loans without 2 years of work history, high DTI, blah blah blah I have already seen most of my preconceived notions of who can qualify for loans blown out of the water. Don't ask if you can qualify ask who will qualify me. People are competing for your business to lend you money is the great realization I have had as a lender. So with that in mind I am open to some insight. I am still learning many much things.

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Greg ScottPro Member
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
4y

Putting your residence into an LLC doesn't seem like it would help much. The banks are going to want to see the LLC can make the payments. Since there is zero rental income on your personal residence, it would appear you would need to back the loan, so all you have done is gotten a higher interest rate bank loan.

It would seem to me the best solution is to go outside the real estate loan system.  If you can afford the debt, see if you can find someone to give you a personal loan.  Hopefully someone you know and trust could use a better interest rate on their cash.  It's better to make 5% than 1%.  You could even post some of your personal property (cars / jewelry) as collateral in the event of default.

If you can buy another cash-flowing rent property or two, that should help your DTI so you can qualify. It appears just reaching 2-years on your taxes will also solve the problem. In either case, you could probably set this loan up as a short two-year loan, so they know exactly when they are getting paid.

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  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    4y

    Putting your residence into an LLC doesn't seem like it would help much. The banks are going to want to see the LLC can make the payments. Since there is zero rental income on your personal residence, it would appear you would need to back the loan, so all you have done is gotten a higher interest rate bank loan.

    It would seem to me the best solution is to go outside the real estate loan system.  If you can afford the debt, see if you can find someone to give you a personal loan.  Hopefully someone you know and trust could use a better interest rate on their cash.  It's better to make 5% than 1%.  You could even post some of your personal property (cars / jewelry) as collateral in the event of default.

    If you can buy another cash-flowing rent property or two, that should help your DTI so you can qualify. It appears just reaching 2-years on your taxes will also solve the problem. In either case, you could probably set this loan up as a short two-year loan, so they know exactly when they are getting paid.

    1Reply
  • Jacob Trogan
    OP
    Lender · Kansas City, MO · Member since 2016 · 142 posts · 71 votes
    4y

    Private money - ok I am looking at that - I would love an open ended LOC with a private investor though but I am guessing that is hard to come by

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  • Megan Templeton
    Attorney · Birmingham, AL · Member since 2022 · 220 posts · 83 votes
    4y

    Hi @Jacob Trogan,

    The only recommendation I would have is that you need to consult with a lender to strategize.

    Thanks,

    -Megan

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  • Jacob Trogan
    OP
    Lender · Kansas City, MO · Member since 2016 · 142 posts · 71 votes
    4y
    Quote from @Megan Templeton:

    Hi @Jacob Trogan,

    The only recommendation I would have is that you need to consult with a lender to strategize.

    Thanks,

    -Megan


    I am a lender. I will tell you what I have found out. I did conventional mortgages so most people in that realm will give me an absolute answer that there is no solution, but there is, so they are wrong. The next place to look is a mortgage broker. But most of them do not do any LOC but one may and if anyone reading this has a recommendation I am all ears. So the next course of action is call banks but the bureaucracy of these banks is so bad that most people you can speak with have no clue what you are talking about since personal bankers these days are glorified tellers (I was one also). So basically I need a credit union or bank that is local because I will need to go in person to speak with anyone competent which is obviously possible but just more time consuming. If someone has a person to call please share.

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  • Jacob Trogan
    OP
    Lender · Kansas City, MO · Member since 2016 · 142 posts · 71 votes
    4y

    Also for future readers the solution to this problem seems to be business lines of credit and other such loans that are tied to business entities and not your personal credit

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  • Jaime Quinones
    Member since 2021 · 1 post · 0 votes
    3y

    @Jacob Trogan Running into a similar situation recently. Where you able to open a new business entity and get the business line of credit approved? or Did you have to wait until the entity had some credit history first? Approx how large of a line of credit where you able obtain?

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  • Jacob Trogan
    OP
    Lender · Kansas City, MO · Member since 2016 · 142 posts · 71 votes
    3y
    Quote from @Jaime Quinones:

    @Jacob Trogan Running into a similar situation recently. Where you able to open a new business entity and get the business line of credit approved? or Did you have to wait until the entity had some credit history first? Approx how large of a line of credit where you able obtain?


    I have got over 50k in business lines but those were through business credit cards at 0%. Those were not a LOC - I probably could get a LOC based on bank statements which is what they look at for a BLOC but I am focusing on income for myself rather than trying to arbitrage debt. Income is the #1 way to build wealth, mines good for a 23 year old but could be much better!

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  • Sol Romand
    Member since 2019 · 54 posts · 12 votes
    3y

    I can help you with business LOC if your interested. Send me a DM and let's talk

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