How can Refi with a high DTI?

Question

I am a buy and hold investor. Over the past 2 years I have acquired 9 units/4 properties. My primary residence is a single family with 2 rental cottages on the property. I added a lot of value to it and would like to do a cash out refi or get a heloc. The problem I am having is my DTI. The more properties I have the higher the debt. Even with them all cash flowing, the DTI goes up with every property. I understand that i may be hitting the end of the line with getting personal loans. The question is how can i get personal financing to do a cash out refi with a DTI of 55%? Any imput is much appreciated?

Matt Devincenzo · Answer

@Stephanie P. yes understood, the net cashflow will offset the debt dollar for dollar. So a $100/mo cashflow could 100% offset the $100/mo mortgage keeping the DTI the same as before. My point was less about the specific calculation, and more to the fact that if these cashflow then the DTI shouldn't be getting in the 55%+ range.

Matt Devincenzo · Answer

If your properties are cash flowing your DTI should be going down, not up. You may need to switch bankers/brokers to someone else that knows how to correctly calculate DTI. Your net monthly cash flow should offset your mortgage dollar for dollar, not be added to your income and then add the debt to your DTI. Here is an article that goes over the info in a bit more detail, and Chris is a BP user as well as a broker I personally have used for three loans and he knows his stuff.

Stephanie P. · Answer

Matt,

The offset for rent is not dollar for dollar; it's 75% of the lease amount.  I thought there was some new guideline I was missing, so I read the article you linked from Chris Mason (thank you) and he explains the equation.

Stephanie

Frank Rizzo · Answer

@Brent Coombs

The investments were purchased before the primary. I bought the primary undervalued, the Reno has brought it to market, so I don’t believe I’m over capitalizing. It  should add quit a bit in equity if I can find a way to refi/heloc.  The rents cover close to the entire mortgage. The mortgages are the only debt I have. I’m having trouble finding out how to banks will view my DTI.

Brent Coombs · Answer

@Frank Rizzo, I'm guessing that you've already regularly borrowed against your primary to get sufficient finance for those extra properties, and for your value-adding (but non-income producing) projects, am I right?  [Congrats on that achievement].

So, cash flowing investments aside, the main hit to your DTI has been those value-adding (lifestyle?) projects, right?  Yes, perhaps you're getting a bit higher rent for your onsite cottages because of all the money you spent - but was it all purely business?

Maybe you over-capitalized your primary?  Just askin'...

Frank Rizzo · Answer

Thanks Matt, So what your saying is the bank should be using the difference between rental debt and income instead of having a debt column and a income column? Thats the info I have been looking for and am having trouble getting a straight answer

Frank Rizzo · Answer

@Stephanie P. Thanks for the response. I have looked into bank statement loans. The rates are higher, mid 5%-mid 6%. I currently have a rate of 3.375%, I would hate to raise my rate that much. I was also looking at getting aHELOC. It seems like I would need a DTI of 43% for that as well.

Stephanie P. · Answer

@Frank Rizzo

There are bank statement products out there that may work.  They use your deposits over the last 12 or 24 months as your income.  Rates aren't Fannie/Freddie, but if your goal is cash, that may work.

How can Refi with a high DTI?

Most Popular Reply