Debt to Income Ratio for investment properties

[Carissa Grant]

I have a primary residence and am looking to purchase my 1st investment property pretty soon. When trying to get financed using a conventional loan how does the debt to income ratio work when purchasing additional properties?  

[JD Martin]

Originally posted by @Rumen Mladenov:

@Mike Wood, I gave a simplified example. I actually have a W2 job that is more than enough to cover my living expenses. If my W2 income is $5 k a month and my primary residence mortgage is $1,000, that would leave my DTI at $6,000/$12,500 = 48% - still an unacceptable risk for most of the banks I approached...

When I had my W2 income and only one or two rentals, I had no problem getting approved for loans. I was a newbie, I did not know how to screen or evict tenants properly, and my tax returns showed loss after depreciation. Then I added a bunch of cash flowing rentals over the years and established a proven track record via tax returns, and suddenly I became unacceptable risk for the bank due to DTI.

 The way around that is to eliminate payments. Either pay off mortgages, or refinance everything into a bundled commercial loan. The bank is only considering your risk of default on that specific property, and someone with more loans has a greater statistical chance of default.