Calculating DTI for owner-occupied multi-family properties?

Question

Hey guys,

I currently owner occupy a 4-unit multi-family and I'm looking to purchase and occupy another 4-unit multi-family. I'm using Fannie Mae selling guidelines to calculate my DTI, but I'm still not sure if I am calculating it correctly. I have one year of rental income history as a landlord. I would be GREATLY appreciative if any knowledgeable investors/lenders could help me with the bold questions below regarding the calculation.

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Total Debt:

• New 4-unit property mortgage
• Do I include the mortgage for my current owner-occupied property if I plan to rent out my unit and the total rental income for all four units would exceed my current property mortgage? I have read that if the rental income for property exceeds the mortgage, you would just net the positive difference towards income. Not sure if that's the case for owner-occupied properties.

Income:

• Two years of my W2 + Bonus income
• 75% of the new 4-unit property mortgage
• Would I add the rental income for my owner-occupied property if I intend to rent my unit out and the combined rental income would exceed the mortgage (see above)?

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For reference, I looked at:

Rental Income Calculation Worksheets

Fannie Mae publishes four worksheets that lenders may use to calculate rental income. Use of these worksheets is optional. The worksheets are:

• Rental Income Worksheet – Principal Residence, 2– to 4–unit Property (Form 1037),
• Rental Income Worksheet – Individual Rental Income from Investment Property(s) (up to 4 properties) (Form 1038),
• Rental Income Worksheet – Individual Rental Income from Investment Property(s) (up to 10 properties) (Form 1038A), and
• Rental Income Worksheet – Business Rental Income from Investment Property(s) (Form 1039).

https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B3-Underwriting-Borrowers/Chapter-B3-3-Income-Assessment/Section-B3-3-1-Employment-and-Other-Sources-of-Income/1032995141/B3-3-1-08-Rental-Income-06-03-2020.htm

Andrew Postell · Answer

@Paul Lee what's the purpose of you calculating your DTI?  What benefit do you get from it?

The reason why I ask is because to technically calculate your DTI is seems we would need to analyze your tax returns.  If you have 12 months of experience right now, that would imply that your rental income was reported on your 2021 tax returns....that is, if you even filed them.  If you did not file them, then we would not....but the moment you do file them, your DTI calculation will change.  I can still answer some of the questions here but I always caution people when doing this.  Also, you are referencing Fannie Mae only here....what if Freddie Mac fits you better?  What if your lender doesn't even write to Fannie.  Lot's to think of with this stuff and even a simple nuance can change the math some.  It's just easier to let a mortgage professional do it.

Do I include the mortgage for my current owner-occupied property if I plan to rent out my unit and the total rental income for all four units would exceed my current property mortgage? - Yes, you include your current mortgage in this scenario.  Any debt in your name is included.Would I add the rental income for my owner-occupied property if I intend to rent my unit out and the combined rental income would exceed the mortgage (see above)? - On this one I would only include it if you needed it to qualify.  Meaning, if you DID need the rental income, you would also be required to have an executed lease on that one unit you were occupying that you are no longer occupying but instead renting.  However, if you don't even need the rental income to qualify for the next property then there's no reason to force you to do more work.  So this answer is situational. You would only add the income if you need it - and then you would need a lease before you could close on your next property.

Hope all of this helps in some way.