Overcoming DTI Concerns in "Subject-To" Deals

Dallas, Texas
Creative Real Estate Financing
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Overcoming DTI Concerns in "Subject-To" Deals

Ethan Garrett
Investor 路 Dallas, TX 路 Member since 2020 路 15 posts 路 5 votes

Hey fellow investors,

I've recently come across a challenge in a "subject-to" deal and I'm reaching out for insights and solutions from this knowledgeable community.

The Challenge:
How can we structure a "subject-to" deal in a way that mitigates or eliminates the negative impact on the seller's DTI, while ensuring the mortgage remains in their name?

We're looking for creative yet legally sound strategies that can help ensure a win-win for both parties. Have any of you faced a similar situation? If so, how did you navigate it? Are there specific trust structures or other legal instruments you've successfully used in such scenarios?

Your expertise and advice would be greatly appreciated!

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  • Julee FelsmanPro Member
    Lender 路 Portland, OR 路 Member since 2018 路 163 posts 路 136 votes
    2y

    @Ethan Garrett from my perspective (30 years in residential lending), this is a tall order. Agency guidelines allow for "debts paid by others" to be excluded from DTI once there is a 12 month payment history showing the other party has paid the obligation from their own funds. However, this rule can only be applied to a mortgage if the person paying the mortgage is also obligated on the debt.

    Rent could theoretically offset the mortgage obligation. Guidelines allow a lender to use 75% of a lease to offset PITI. But that only works for a property the individual still owns. So if you're transferring title that option is out as well.

    The only other possible route would be a court order. Most commonly this would be a divorce, of course. If a court assigns a debt to another party, then lenders are allowed to exclude it from ratios. So I guess you could get married and then divorce your seller. 馃槈(Perhaps not the most practical option.)

    The applicable guidelines are here: https://selling-guide.fanniemae.com/Selling-Guide/Originatio...

    And of course transferring title also triggers the underlying lienholder's "separation" or "due on sale" clause, so you and the seller are both running a risk that the lienholder will discover the transfer title and call the note. 


    [email protected]503-799-3711
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