Net or Gross income used for DTI
Rental Property Investor · Eureka CA · Member since 2020 · 91 posts · 27 votes
Do lenders typically use net or gross rental income when calculating DTI?
Depends on the product - I know I know, sorry.
Going to address the rental income portion of this question. DTI can take rental income into account, however these are sort of unique from each other. Kind of like apples vs. apples with DTI
Let's say this, we take a good hard look at your SchE on your taxes and calculate based on that. From there, depending on the GSE the loan gets sold to, we will interpret the SchE income accordingly. VA rental income is interpreted one way, while conventional guidelines interpret another way, while FHA is slightly different.
NonQM and commercial products are more of a DSCR equation or asset based, which would include gross rents.
To answer your question, yes, we start with gross rents - but it's not the whole story.
What's your particular situation?
@Erik Browning I have a primary - I rent out the rooms I don't occupy. I pay 1440, rental gross is 2150. I have 180k in equity there. I just bought a 4plex with someone else's money (long story), my name will be on the title alone, the income will be mine alone for tax purposes. I'll pay $3,298.87 monthly, while income will be 6000. Should have 100k in equity by this time next year. I also have 3000 in wage income. So long story short I'll have 11150 in gross income and 4738 in debt service which should be 44% DTI. ...Trying to figure out my odds for qualifying for a Heloc to be able to leverage the equity for a down payment on a third property, which is the goal. After deductions, my net income would be nowhere near helpful for this goal.
@Hannah Joy need to see that Schedule E on your taxes as well as leases to give you a rock solid, 100% answer. However, let's try. Assuming you are conventional.
Assuming you meet all the req's for THIS GUIDELINE, the $2150 of gross income from the boarders in your home can be up to 30% of your total qualifying income. So you don't have to do the math, your total income to count all of this would be $7,166.67/mo. If $2150 makes up more than 30% of your monthly income, you can only use up to whatever 30% of your total income is.
For the OPM property: first, you'll need 6 months of reserves since you're on title. Did you know that? You'll also need to count taxes and insurance against you on a monthly basis, which will affect your DTI. Also, you may want to start determining now how you will file your schedule E. If you spend a lot on repairs for this property, it may count against you for future purchases.
Wait...
Honestly I stopped after 2 sentences in because I just realized you have other stuff that's just too much to do over BiggerPockets - there's just too many variables. I also just now saw that your wage income is $3k and your OPM's 4plex income is around $2700, not accounting for your associated expenses, repairs, and depreciation... which means you may not be able to use that full boarder income.
Hannah I'd be happy to help over a phone call however over BP asking you for your tax information is cumbersome and invasive. Feel free to reach out for a comprehensive analysis and help you develop a plan for the next purchase moving forward.
I only have commercial properties and banks only use the NOI for that particular building. If you don't have a strong track record, I imagine they will look at the DTI for the aggregate NOI of all your properties plus your personal debt and W2 income.
I guess this is a bad answer because I basically said “both”
@Hannah Joy need to see that Schedule E on your taxes as well as leases to give you a rock solid, 100% answer. However, let's try. Assuming you are conventional.
Assuming you meet all the req's for THIS GUIDELINE, the $2150 of gross income from the boarders in your home can be up to 30% of your total qualifying income. So you don't have to do the math, your total income to count all of this would be $7,166.67/mo. If $2150 makes up more than 30% of your monthly income, you can only use up to whatever 30% of your total income is.
For the OPM property: first, you'll need 6 months of reserves since you're on title. Did you know that? You'll also need to count taxes and insurance against you on a monthly basis, which will affect your DTI. Also, you may want to start determining now how you will file your schedule E. If you spend a lot on repairs for this property, it may count against you for future purchases.
Wait...
Honestly I stopped after 2 sentences in because I just realized you have other stuff that's just too much to do over BiggerPockets - there's just too many variables. I also just now saw that your wage income is $3k and your OPM's 4plex income is around $2700, not accounting for your associated expenses, repairs, and depreciation... which means you may not be able to use that full boarder income.
Hannah I'd be happy to help over a phone call however over BP asking you for your tax information is cumbersome and invasive. Feel free to reach out for a comprehensive analysis and help you develop a plan for the next purchase moving forward.
@Erik Browning I would love to chat! Whats the best way to do that?