Need Advice on Getting a Loan With a High DTI!

[Matt Thomas]

Bigger Pockets,

I am in the process of buying a primary residence and was just denied a conventional loan from a lender because my DTI was too high.

Here is my situation:

I am in the military and moving from HCOL area to a LCOL area. My Housing allowance will shrink from around $4,000 a month to $1,700 a month because of the much lower cost of living.

I own two rental properties. One bought in 2017 with a VA loan. It has $275,000 left on the mortgage that cash flows about $300 a month. The second bought in 2021 with a conventional loan; $135,000 left on the mortgage with about $700 a month cash flow. The lender that denied my loan request said that the rental income from ‘pretty much canceled out the debt I owe in mortgages'.

The problem comes from the fact that I also own a house at my previous duty station (HCOL area) with $530,000 left on the mortgage, which was a VA loan as well. I am in the process of selling that one, but the housing market is slow and it's not a fantastic property, and I don't anticipate it being sold before I want to close on a house at my new duty station. The mortgage on that is about $4,000 a month. This was fine when my housing allowance was $4,000 a month, but now that the allowance is $1,700 a month, I am eating that cost every month. I have the money in savings to float that house for a year if needed, not including money for a down payment.

Other information:

I have reached out to another lender that I have used in the past and have a good relationship with to see if he will give me a loan. I am expecting to hear back in the next 24 hours.

I will not be able to use a VA loan right now since two of my three houses were bought using it, and I would not have enough VA entitlement in this LCOL area available.

I am planning on putting at least 20% down on this property; potentially more if I think it will get the payment to a place where I can rent it out and have positive cash flow upon leaving in 2-3 years.

I have been house hunting in my new area, found a house I like, and am currently in the process of buying it. I’ve put $1,500 down for earnest money. Yes, I would have done things differently had I known the lender would have not approved my loan, as they originally said a few months ago when I reached out that I would be good (they did not fully understand the reduction in housing allowance that would happen).

Here are my questions:

1. Other than getting my house in Northern California sold to reduce that debt from my DTI, will my current DTI allow me to get any conventional loan? Or will I need to look at a different loan product?

2. If I do need a different loan product, what do you recommend? Should I be going to smaller community banks, private lenders, etc.?

3. My girlfriend is moving with me; she makes more money than I do, and has no debt. She has offered to ‘help’ if needed. However, there is a very good chance that 1) she will be my wife by the time I have to move again, and 2) we will be moving to a HCOL area after this duty station. I’d like to keep her separate from this home buying process so that she can potentially take advantage of any first time home buyer loans at the next duty station, since I would not be able to. Is this a sound strategy or not?

Thanks for reading this diatribe; any advice would be appreciated. If there is more information needed let me know.