Lender question- Landlord, 820 Credit Score, denied on small loans

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Lender question- Landlord, 820 Credit Score, denied on small loans

Thomas M.
Investor · Los Angeles, CA · Member since 2012 · 54 posts · 19 votes

Here's a question for anyone who works in lending (and a cautionary tale for those just getting into RE.

I own 4 properties, all 4 of them are on my credit report. All 4 are rented out and cash flow positive.

I have applied for a few small loans over the years (solar loan, car loan, etc) and my application gets denied INSTANTLY because of how many properties I own and how it affects DTI ratio.

My credit score is over 820, my income is very high.

Total mortgage on the 4 properties is around 25K per month. The lenders simply look at that and assume I'm on the hook for 25K a month for 4 houses and I live in all the houses and have no renters. They say "you have 25K in mortages every month, your income doesn't support that so the loan is denied."

I've tried to tell them I have renters and all the properties are cash flow positive. They will hear NONE OF THAT! They just say "DENIED, thank you goodbye." The banks have never heard of such a thing as renting out buildings.

Does this happen to all landlords??? Am I the only person in the world renting out a few 4plexes profitably?

I had one bank that asked for my taxes, I gave them the taxes and it was way too confusing for them they just denied it right away.

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Robin SimonBusiness Member
Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
3y
Quote from @Thomas M.:

Here's a question for anyone who works in lending (and a cautionary tale for those just getting into RE.

I own 4 properties, all 4 of them are on my credit report. All 4 are rented out and cash flow positive.

I have applied for a few small loans over the years (solar loan, car loan, etc) and my application gets denied INSTANTLY because of how many properties I own and how it affects DTI ratio.

My credit score is over 820, my income is very high.

Total mortgage on the 4 properties is around 25K per month. The lenders simply look at that and assume I'm on the hook for 25K a month for 4 houses and I live in all the houses and have no renters. They say "you have 25K in mortages every month, your income doesn't support that so the loan is denied."

I've tried to tell them I have renters and all the properties are cash flow positive. They will hear NONE OF THAT! They just say "DENIED, thank you goodbye." The banks have never heard of such a thing as renting out buildings.

Does this happen to all landlords??? Am I the only person in the world renting out a few 4plexes profitably?

I had one bank that asked for my taxes, I gave them the taxes and it was way too confusing for them they just denied it right away.


You seem like a picture perfect example of someone who DSCR Loans are designed for. I like to say that the best investor for DSCR Loans is someone between 5-50 properties, where 1-4 you still qualify for conventional and should take advantage of those rates, where 50+ you become more institutional.

DSCR is great for when you are ready to do 5+ because a lot of people are in your same boat - once they hit this number the DTI doesn't work and qualifying for conventional becomes hard and a huge hassle - where DSCR becomes a much better option because of no DTI calc required, no tax returns and the qualification is simply on the new property and doesn't take into account your other four properties as a negative (its a positive actually for a DSCR Lender!)

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  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    3y

    'kinda think you are missing some details. I have some free and clear properties and some with conventional mortgages all rented, never had a problem getting a car loan- recently got one at 3.9%. I'm thinking your credit report also shows credit cards with high balances unsecured? A HELOC?

    850 is maximum credit score. The credit reports for consumers on my free xyz are not the same.

    You have a W-2 job and claim that plus the rents? The net is large or negative?

    A lady or guy in a bank cranch who does car loans and opens the vault and opens checking accounts cannot approve your loan. It first is run through computer math to make it simple and maybe maybe a human in Idaho. "telling them" verses showing your IRS returns with NET income not the gross is the reason. Likely you have large expenses to the bottom line like ALL self employed people.

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  • Doug SmithPro Member
    Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
    3y

    I know I've posted this example before, so forgive me if you've seen it, but it's a math issue with conventionl-style loans. Fannie/Freddie want you to have no more than a 43% Debt-to-Income Ratio (actually...50% or less usually get it done, but that's for another discussion). In other words, if you make $1000/month, you can have no more than $430 going out in your mortgage payments, taxes, insurance, car payments, credit card payments, etc. Now, let's say you find a property that gives you a positive cash flow of $200/month with a rent of $1000/mo and PITI payments of only $800. By adding that rental property, you went from a 43% DTI ($430/$1000) to a 61.5% DTI ()$430+$800)/($1000+$1000)). Yes, I know that is not exactly how rent is calculated, but the point is that once you get past a rental property or two, conventional financing is no longer an option due to the trick in the math. That's why DSCR/Cash Flow loans are so popular. Loans like them help you scale where conventional financing won't. It's not about credit or collateral...it's about "capacity", meaning cash flow. I feel for ya. I do, but that's how they calculate it.

    1Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    3y
    Quote from @Thomas M.:

    Here's a question for anyone who works in lending (and a cautionary tale for those just getting into RE.

    I own 4 properties, all 4 of them are on my credit report. All 4 are rented out and cash flow positive.

    I have applied for a few small loans over the years (solar loan, car loan, etc) and my application gets denied INSTANTLY because of how many properties I own and how it affects DTI ratio.

    My credit score is over 820, my income is very high.

    Total mortgage on the 4 properties is around 25K per month. The lenders simply look at that and assume I'm on the hook for 25K a month for 4 houses and I live in all the houses and have no renters. They say "you have 25K in mortages every month, your income doesn't support that so the loan is denied."

    I've tried to tell them I have renters and all the properties are cash flow positive. They will hear NONE OF THAT! They just say "DENIED, thank you goodbye." The banks have never heard of such a thing as renting out buildings.

    Does this happen to all landlords??? Am I the only person in the world renting out a few 4plexes profitably?

    I had one bank that asked for my taxes, I gave them the taxes and it was way too confusing for them they just denied it right away.


    Sounds like a DSCR loan would work best for you. You qualify based on the rents covering the new mortgage payment. Personal DTI is not a factor to qualify.

    [email protected]818-269-7983
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  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    3y
    Quote from @Thomas M.:

    Here's a question for anyone who works in lending (and a cautionary tale for those just getting into RE.

    I own 4 properties, all 4 of them are on my credit report. All 4 are rented out and cash flow positive.

    I have applied for a few small loans over the years (solar loan, car loan, etc) and my application gets denied INSTANTLY because of how many properties I own and how it affects DTI ratio.

    My credit score is over 820, my income is very high.

    Total mortgage on the 4 properties is around 25K per month. The lenders simply look at that and assume I'm on the hook for 25K a month for 4 houses and I live in all the houses and have no renters. They say "you have 25K in mortages every month, your income doesn't support that so the loan is denied."

    I've tried to tell them I have renters and all the properties are cash flow positive. They will hear NONE OF THAT! They just say "DENIED, thank you goodbye." The banks have never heard of such a thing as renting out buildings.

    Does this happen to all landlords??? Am I the only person in the world renting out a few 4plexes profitably?

    I had one bank that asked for my taxes, I gave them the taxes and it was way too confusing for them they just denied it right away.


    You seem like a picture perfect example of someone who DSCR Loans are designed for. I like to say that the best investor for DSCR Loans is someone between 5-50 properties, where 1-4 you still qualify for conventional and should take advantage of those rates, where 50+ you become more institutional.

    DSCR is great for when you are ready to do 5+ because a lot of people are in your same boat - once they hit this number the DTI doesn't work and qualifying for conventional becomes hard and a huge hassle - where DSCR becomes a much better option because of no DTI calc required, no tax returns and the qualification is simply on the new property and doesn't take into account your other four properties as a negative (its a positive actually for a DSCR Lender!)

    [email protected]
    Harpoon Capital514 Reviews
    WebsiteView Page
    10Reply
  • Stacy RaskinBusiness Member
    Lender · Member since 2022 · 1k+ posts · 514 votes
    3y

    @Thomas M., from what you wrote you would be able to qualify for a conventional (would consider your DTI (debt to income) ratio or a DSCR loan which will not consider your personal DTI. It will be structured on the rents covering the mortgages.

    You mentioned small loans- what is the loan amount that you are looking for? Many lenders have $100-150K loan amounts minimums. 

    DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.

    Here's a bit more in detail about how rates are calculated for DSCR loans:

    1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders

    2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.

    3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.

    4. Are you cash flowing the property? Is your DSCR ratio greater than 1-meaning are you cash flowing. Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit.

    I've included an example below to help illustrate this.

    So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.

    See example below:

    DSCR < 1

    Principal + Interest = $1,700

    Taxes = $350, Insurance = $100, Association Dues = $50

    Total PITIA = $2200

    Rent = $2000

    DSCR = Rent/PITIA = 2000/2200 = 0.91

    Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

    DSCR >1

    Principal + Interest = $1,500

    Taxes = $250, Insurance = $100, Association Dues = $25

    Total PITIA = $1875 Rent = $2300

    DSCR = Rent/PITIA = 2300/1875 = 1.23

    DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

    [email protected]818-770-0340
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    0Reply
  • Jeff Prow
    Lender · United States · Member since 2023 · 73 posts · 13 votes
    3y

    The DSCR like several have said would be an option, also our all in one HELOC may work for you as well, can be purchase or refi.

    0Reply
  • Alex Croft
    Columbus, OH · Member since 2023 · 3 posts · 0 votes
    3y

    I would be able to help with your situation. I work with a private boutique lender & investor. Feel free to DM.

    0Reply
  • Brayden Hrycko
    Lender · Allentown, PA · Member since 2023 · 207 posts · 38 votes
    3y

    Hey @Thomas M.,

    Have you been trying just banks? Have you spoken to any mortgage brokers? It sounds like you haven't talked to anyone that can read your tax returns well or you may just need to go DSCR. I would be happy to chat. Feel free to reach out.

    1Reply
  • Jamie Jones
    Lender · Nashville, TN · Member since 2017 · 205 posts · 107 votes
    3y

    Sounds like you aren't talking to anyone who is actually incentivized to close loans. Talk to a mortgage professional. I have closed many loans for folks on conventional finances who have multiple properties. It really all comes down to what shows on the schedule E of your tax returns to show how much rental income underwriters can use to offset the PITI payments on your rentals. Generally they can add back insurance, taxes, mortgage interest, and depreciation from the deductions you took.

    So as long as your write-offs aren't too big, and you have strong W2 income, I don't see an issue in getting conventional financing if looking for another mortgage. 

    1Reply
  • Jim Kinzeler
    Member since 2023 · 7 posts · 0 votes
    3y

    I have received at least 6-8 loans in the past 8 years with multiple properties like yourself. HOWEVER I FOUND THAT I MISSED GETTING THE LOANS MANY TIMES BECAUSE 98% OF LENDERS HAVE NO CLUE HOW LENDING REALLY WORKS, AND HOW TO OFFSET YOUR PITI W THE RENTS, ETC. AND ONLY DTI YOUR INCOME AFTER THOSE CALCULATIONS ON THE PROPERTY OR LOAN YOU ARE GETTING... NOT CERTAIN ABT CAR LOANS BUT I KNOW THIS AS A FACT ON REAL ESTATE (P.S. MY WIFE USED TO DO COMMERCIAL REAL ESTATE LENDING SO SHE MAKES CERTAIN THE LENDERS KNOW WHAT THEY ARE DOING NOW, BUT YES MOST OF THEM ARE LAZY AND LIE AND PROMISE THEY CAN GET THE LOAN, AND HAVE NO CLUE HOW TO FIGURE ANYTHING BEYOND BASIC W-2 INCOME) HATE TO SAY IT BUT JAMIE JONES ABOVE GAVE THE ONLY CORRECT ANSWER I SAW... ANYWAY WE'VE LOST 10,000'S OF $$ NOW IN LOST TIME AND INCOME DUE TO LENDERS LYING AND TAKING A LOAN ON THEY DIDN'T KNOW HOW TO DO AND TYING US UP (SOMETIMES UP TO 6 LENDERS TO GET ONE LOAN THAT THE FINAL GUY GETS THE LOAN VERY EASILY CUZ HE KNOWS WHAT HE'S DOING) WHILE INTEREST RATES WENT UP SEVERAL POINTS AS IT TOOK US AN AVG OF 1 YR FOR EACH REFI!

    0Reply
  • Jim Kinzeler
    Member since 2023 · 7 posts · 0 votes
    3y

    PS. WE also lost 12k deposit on a house we were going to purchase cuz a lender didn't know how to do the loan altho she had gotten a loan for us prior, we later found out she had no clue what she was doing and only lucked out the first time...and entered all the numbers in wrong and got the underwriter paranoid abt our loan and then she went on vacation leaving an assistant on our loan who knew even less, and they had the underwriter so confused he kept asking for the same info over and over, cuz he was scared of the loan.

    0Reply
  • Doug SmithPro Member
    Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
    3y

    It's a trick of math and, unfortunately, it's very real. Since the last crash, Congress passed several laws...namely Dodd Frank...which, among other things, requires lenders that lend to consumers for consumer property to prove that the borrower has the ability to pay the loan back. Basically, they have to prove that the ratio of debts to provable income is within what regulators consider to be reasonable. Fannie Mae and Freddie Mac put that about at 43% (yes...I know they can go higher, but this is guideline). Let's say you make $1000/month in income. That means that you can have $430 or less going out in debt payments...or 43% DTI. Now, let's say you find a rental property that cash flows $200 positive by earning an additional $1000 month in rent with only $800 in PITI payments. Sounds good, right? Now let's redo the math: $1000 in old income plus $1000 in new income = $2000 in total income. $430 in old debt payments plus $800 in new debt payments = $1230/month. Now you've jumped from 43% DTI to 61.5% DTI...you no longer qualify. It's a cruel trick, but it's the way it works. That's why the new DSCR loan that only looks at your property cash flow has become so popular. It allows one to scale a rental portfolio. Does that help answer the question?

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  • Jill F.
    Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes
    3y

    I once got denied for a 40k HELOC while I was working on a deal with a 1M DSCR loan approved. VERY different requirements by underwriters.

    0Reply
  • Tychua G.
    Member since 2018 · 33 posts · 7 votes
    3y

    @Robin Simon

    How many months of rent is needed to qualify for a DSCR Cashout rental? Besides cashflow, what else is the Underwriter looking for?

    0Reply
  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    3y

    @Tychua G. DSCR can be a purchase and the appraiser does a rental survey 1007 form that's the number that is used. If a refinance you need a lease to match or higher.

    DSCR weighs heavy on FICO score, you need good credit, no forbearance, no mortgage lates. Some DSCR shops want to see "experience" as an investor (existing mortgages paid as agreed).

    Property MUST be in the footprint the lender wants- good property that is ready to rent not rehab. Lower loan amounts limit your options but they exist.

    When you are purchasing using DSCR you need insurance quote and if in HOA exact numbers (fees/occupancy rates/reserves of HOA/master policy).

    1Reply
  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    3y

    @Jim Kinzeler most lenders have a portal where you the borrower enter all the financial numbers and can see your income, assets, credit, conditions throughout the process every day until final documents. Sounds like where you went you submitted into a black hole, a very old school 1990 method of application

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