Hard money loan shows up in your dti

[Nicholas Weckstein]

If you borrow from a hard money lender. Use the funds to buy and rehab a multi family property. Rent it out and then approach a bank for a cash out refi to pay the HML, won’t the loan that you have with HML show up and effect your DTI. Which could mess up your refi and kill the whole strategy?

[Chris Mason]

Originally posted by @Nicholas Weckstein:

if thats the case then how could one expect to refinance out of a hard money loan? 

Debts being paid off with cash out refinance proceeds are not included in your DTI. When you refinance, you typically pay off the existing mortgage and replace it with a new one.

Example math assuming a fake scenario where someone's only debt is the one property in a HML.

HML payment on Property A: $5000

Income $8000

Current DTI: $5k/$8k = 62.5%

Payment after refinance on Property A: $3000

DTI calculated for that refinance: 37.5%

Where you can get jammed up is if you want to purchase or refinance Property B before Property A is out of hard money. Flippers who have 3 flips in the works all in hard money, and want to buy one using conventional financing are typically SOL, unfortunately. But if your plate only has 1 thing at a time on it, it's a non issue.

Good luck!