Question regarding 20% down on rental?

[Robert G.]

Hi BP!

May have just found a perfect rental in my area but had a quick question regarding the financing (am calling my mortgage specialist tomorrow!).

Long story short....purchase price is 135k and is a short sale. I have 25% down payment in my savings BUT am curious if I will be able to secure a loan if the remaining amount (108k) doesn't work w/ my DTI ratios.

Could a put a lease agreement in place to secure the financing or would it have to work w/ my DTI?

Thanks!

[Ed Wood]

1. You'll get a much better interest rate with 25% down vs 20% down on investment property.
   
2. DTI must be under 50%. This includes your current house PITI, your payments on your credit report like cars and credit cards AND the new subject property PITI. For example if you make 10k per month and all these payments add up to $4900 you would be at a 49% DTI.
   
3. To use the rents from the subject property you must have 2 years landlord experience as evidenced on your schedule E from your federal returns. If you have two years landlord experience then you will be able to use 75% of the gross rents. The underwriter will ask for a copy of the lease and may ask for a paper-trail of the tenants deposit. And of course it must be arms-length tenant meaning not a relative.