How to maximize DTI for new conventional mtge?

5 Replies

Hi BP - Hoping for some guidance here. I have 1 cash flowing rental property (FHA mtge as I used to live there) and I'm currently leasing the place where I live now. In the next few months, I'm hoping to buy and move into a property (with a conventional mortgage). Looking to optimize my income and expenses on my taxes as I know there are a broad range of options that are all in full compliance w/ standard tax code. My student loans are colossal and I have very very good credit. Put the whole package together and the banks have no problem approving me for a very small amount due to my high expenses for student loans in the DTI. The problem is, properties near me are a good 80k-100k above what I'm getting approved for.. I know for certain I have the income necessary, that is not a question.. I just have to figure out the proper way to work it out..

Last year I shot myself in the foot by declaring 'unreimbursed business expenses' that were actual expenses.  In retrospect, I would have preferred to not claim these expenses against my income and simply pay the higher tax bill, than to get a tax deduction and reduce my mortgage qualification amount by a decent amount.  Additionally, my rental was under renovation until April so I had a few months of vacancy which the underwriter counted against my income (rightfully so).

Now I'm finishing up 2014 taxes and I want to ensure I display everything (of course legally) in a way that maximizes the amount a conventional underwriter can approve.

Rental income

I know I cannot use any net income from rental towards my qualifying income.. ie: If my gross income for the rental is 50k and the debt service/taxes/ins only cost 20..  My understanding is that I'm no better off than if my gross income was exactly 20k.

W2 Income

Not real numbers but for argument sake:  Let's say I make 200k and I deposit 50k into a pre-tax 401k over 2014.  My gross income still counts for a mortgage qualification right?  ie: they won't say since I contributed 50k to a 401k, my income is 150k instead of 200k?

Expenses

Which expenses can I safely write off without it hurting my DTI ratio for an upcoming mortgage?

Anything I'm missing here?  Any input and advice I would appreciate it.

Thanks,

Ryan

Hey Ryan,

 If you have rental history of 24months for this property ( 2 years of Schedule E) you can add your depreciation back in, and this should count as gross income. You can also use 75% of new purchased property's lease amount to offset it's debt, provided you supply a signed lease agreement.

You are correct that the full 200K is counted as gross income, in your example.

Terry

Thanks Terry.  The property will be fully leased for 24 months come May 1st.  Taxes are due next week unless I file for an extention. Does a schedule E have to be completed with my taxes or is the something I can complete independently?

Additionally, if I write off repairs on my rental, will this discount my 'counted' income?  Or is it just debt service, taxes, and insurance that the underwriter will look at?

Much appreciated.

Ryan

Follow-up question..  I know most loans are streamlined into Fannie, Freddie, Ginnie.. Are some underwriters more strict than others?  Or will I get pretty much the same package requirements no matter who I speak with simply because the loans are being pushed through into conforming pools.  

ie: Am I better speaking with a super small mtge bank some leniency on a higher allowable DTI

Any creative ideas?

Ryan,

 Schedule E must be done with taxes.

The info I told you is based on Fannie/Freddie guidelines, but in each underwriter will do this a little different.  So repairs costs if on you schedule E may be held against you.

Thank you for your help.  Much appreciated