Does a commercial loan count against my personal DTI?

Question

I'm about to get my first commercial loan after doing four properties conventional. The reason I'm going to commercial is that I'm past the bank's happy-point of DTI. If I switch one of my conventional loans to commercial will that take it off of my personal list and free up some room for another conventional?

Chris Mason · Answer

That's probably nonsense. Most of the time it's just that commercial LOs are more landlord friendly than residential, on average (the terms they offer are worse, so they have to be to compensate).

I'd do a little more dialing for dollars (your network, REIA, this website) to find a residential LO that is investor friendly and licensed in your state, rather than walking into a bank or calling a 1-800 number and speaking to whomever isn't busy at the moment and taking their "no" as the end-all be-all (it's not that they aren't busy because they are waiting for YOU to walk in or call, they aren't busy because they are waiting for a W2 husband/wife buying their primary residence to walk in or call... that's all they know how to handle - hence them not being busy when you walk in or call!). But, ultimately, your call.

9 times out of 10, DTI goes down as you acquire more cashflow positive rental properties. Assuming the math is being done correctly. You can actually do all this math for yourself, here, if you wish (& especially take note of "partial or no rental history on tax returns" having more content than just the word "no").  If the number you net out at the end of all the worksheets (found at the bottom at that link) is a positive number, that means your DTI is actually LOWER than if you didn't own a single investment property.

Russell Brazil · Answer

You should really try to maximize your 10 conventional loan limit before moving up to commercial. Unless your properties are operating at losses, you should receive credit for rental income to measure against those mortgages.

Chris Mason · Answer

I think you will have better luck finding someone that actually knows how to do it, rather than going the route of trying to pressure someone to allow you to teach them how to do their own jobs that has no interest in learning. There are also overlays to consider.

But, best o' luck either way.

Brian Barfoot · Answer

Thanks @Chris Mason. That 1038 form is exactly what I needed to see and I am running a profit of 1-200 per door. I'll put pressure on the banks again that I have a relationship with. I'd love to keep getting 4-5% 30 year mortgages while I can.

Brian Barfoot · Answer

@Russell Brazil I agree with you in principle but the lenders I've been dealing with are telling me that the properties haven't been showing a profit long enough for them to be counted as income. I'd like to keep expanding our business and commercial will allow us to do that. I can't even get a HELOC from my credit union because I bought three properties last year and they're too fresh even though I have spreadsheets showing an average of 410/month profit after PITI.

@Jeff B. That's what I was hoping to hear. I'll post something if it goes as planned.

Jeff B. · Answer

That depends upon the view of the next lender.  Technically, as the commercial was covered with a DSCR, your DTI could be seen as being reduced, even with a personal guaranteed loan,

Does a commercial loan count against my personal DTI?

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