general financing question

[Noah N.]

How will my first real estate investment loan affect my credit score and my ability to receive more investment loans in the future. Does a FICO score even factor into real estate investments?

[Kelly N.]

Hi Noah,

Your DTI is calculated by adding up all your debt for the year (every car payment, mortgage, student loan, etc) and dividing it by your gross income for the year. I was told banks wanted to see 43% or less- meaning 43% of your gross income is paying for debts INCLUDING the new mortgage you are obtaining. Hope that makes sense.

The cool thing about investment property is that at some point (immediately or in 2 years) the banks will count the income from that property instead of seeing it as a debt.  So instead of the mortgage payments being on the top of the equation, they will put the income from the property in the income (bottom) of the equation and it helps you qualify to borrow more money.  

One banker told me they would take my gross rents, multiply by 75%, subtract the mortgage, taxes, and insurance (PITI) and count that as income. Other lenders may analyze your business a little more closely.

Kelly