Help with DTI denials moving from first home to 2nd

[Christopher Beasley]

I am pre-approved for $350k. I am using a VA loan and must live in the house for a year before I can move. The payments would be $1976 because I am exempt from taxes. My income is $7600 a month and I have $600 in debt. So my DTI is currently around 35%. I want to spend the next few years, estimating 4, allowing my home to appreciate and amortize down to 20% equity in the home. Then I'd like to buy the second house using the rest of my VA entitlement which would be 0% down for around 350k and move into it and rent the first one.

having the first home i would be living in, i would be trying to get approved for the next 350k house, but the mortgage on the first and on the second combined puts my DTI to 65%. I know once I move out I would rent the first and the bank would cosidider 75% of the rental income, which would only put my DTI at 53%.

I can't generate rent in the first home until I've moved out into the second home I'm trying to secure the loan with 65% DTI with, which makes me stuck. Any ideas?

I have veterans united tell me if I take the first mortgage with them, for the second mortgage they will consider the rental income before I have a Tennant in it as long as I have a signed lease from a non family member that starts their rent the day I would move into the second home. 

Any other lender tricks anyone knows about or things to do to make my plan come true?

[Erik Browning]

Quote from @Christopher Beasley:

Quote from @Erik Browning:

@Christopher Beasley

Ok, a lot to unpack here.

First, I need to understand this completely: When you say you are $600 in debt, do you mean $600/month? Meaning the $1976 mortgage payment + $600/month in debts are approximately 35% of your monthly income, therefore making your DTI = 35% only including your primary lien + debts?

Second, are you saying that you still want to stay in the primary residence for another 4 years prior to purchasing a 2nd? If so, why are you getting preapproved right now?

Third, I'd make sure that you have enough remaining entitlement to move onto the 2nd home. Veterans United may not have checked your Certificate of eligibility, thus throttling your purchasing power.

Fourth, for VA loans only, it's OK to go past the 50% DTI ratio as long as you have enough of what is called "Residual Income." If you look in the VA guidelines, you are allowed to go past the 50% DTI threshold as long as you have enough cash left over each month. These are broken out by regions and the amount needed as Residual Income differs from place to place. Furthermore, you must add income taxes, state taxes, SS, and Medicare on top of that - as well as the NEW home's utilities, which is a function of the sq footage. If you have enough Residual Income left after that, your DTI can push higher than 50%. Feel free to schedule a call with me if you want to do an example, it's too much to type here. Also, I'm not licensed in OK so I won't try to sell you anything.

Fifth, for you departing residence the 75% of rental income is inaccurate. The guideline states you can only wash out the departing residence's mortgage, even if it's beyond 75%. Take a look for yourself with this excerpt from THE VA GUIDELINES: 

"Use the prospective rental income only to offset the mortgage payment on the rental property, and only if there is not an indication that the property will be difficult to rent. This rental income may not be included in effective income.

Obtain a working knowledge of the local rental market. If there is not a lease on the property, but the local rental market is very strong, the lender may still consider the prospective rental income for offset purposes. Provide a justification on VA Form 26-6393, Loan Analysis.

Reserves are not needed to offset the mortgage payment on the property the Veteran occupies prior to the new loan."

Sixth, you're not stuck, you're just working with Veterans United (VU). VU is a corporate, retail bank with exceptional marketing. They have great content, however they have captive employees that do not receive a commission on each deal. As a result, they will not go the extra mile to work on a somewhat complex scenario, since yours does not fit into the typical cookie cutter box. I'd be happy to refer you to an expert VA broker that can not only beat VU in rate, but also give you a clear solution moving forward.

Lastly, none of these are tricks. This is all published openly to the public, it just takes a bit of creativity to fit all the pieces together. 

You'll make this work.

I rent right now and other than rent I have only $600 in debt month. I am currently pursuing my first house for 330k, which with that mortgage would be what would put me at the 35% DTI.

second, the home I would want to stay in for 4 years would be the first property I purchase. So im preapproving to get that first property.

Third, based on my local area, i am entitled to $675k of VA backing.

4th I am looking for a property in edmond Oklahoma, so what are the requirements for that area to go over 50% DTI? Can I PM you all the necessary details to get a figure calculated? Are all lenders OK with going beyond 50% based on these factors or just some?

fifth I am assuming that means they will include the whole rental payment toward my income not just 75%? So if I am living in the first house, andove into the second one, and the first rentals rent is exactly thr PITI of the firat home, they will count that as a net sum of 0 toward debt and income? Is that a rule a lender would be more strict on? How long do I have to collect that rent before they consider it?

So while I am living in the first house, and trying to get preapproved to move into the second one to rent out the first one, as long as my Residual Income after the 2nd homes costs are going to be met they will let me borrow above the 50% DTI, then I could move into the second and start renting the 1st right? Or how would that work?

 I'm happy to help out all veterans and active duty folks - I'm a veteran myself as well as a lender. This community is underserved, with regard to investing, and will certainly speak with you on clarifying this for your particular situation.

Do this please. Up-Vote and read some of my past posts, then send me a DM so we can take this offline. Your situation has a lot of moving parts and will take some time to explain as well as referencing the guidelines.