Why is DTI so hard to overcome?

[Grayson Gist]

Hey,

Long story short is that I’m trying to buy a second Fourplex and lender’s are quick to say no.

I currently own one SFR in Oklahoma, and one Fourplex in Kansas City that I owner occupy. My wife and I are trying to buy another Fourplex to owner occupy and banks are giving us a hard time about DTI.

I looked everywhere and read a few books and can’t seem to find the missing puzzle piece.

1. All the properties cover the mortgage and then some.... even when I am (and will) live in them.

2. I have about 1.5 years so far of “landlord” experience but only partial year reports on my tax return.

3. My W-2 job is about $80k a year.

I’ve heard the lender should just add the difference (positive or negative) to my income and not count the mortgage to my debt.

But I've also heard they take 75% the rent -PITIA and include the debt. So every property that would "break even" with that puts that DTI as 100%. Am I missing something?

Thanks!

[Stephanie P.]

@Grayson Gist

There are a couple of reasons:

• Occupancy fraud is the number one type of fraud in the mortgage industry
• Most people buy a 4 unit and then move up to a single family; they don't continue to buy 4 unit properties
• FHA expressly says in its guidelines that "FHA will not insure a mortgage if it is determined that the transaction was designed to use FHA mortgage insurance as a vehicle for obtaining investment properties, even if the property to be insured will be the only one owned using FHA mortgage insurance." https://www.hud.gov/sites/documents/4155-1_4_SECB.PDF ... so if you're trying to use FHA, you could be running into that guideline
• Over 2 units, FHA requires the property to pass a self sufficiency test as well, meaning 75% of the market rents must cover the mortgage amount and they also have to apply a market vacancy rate to the mix.

Lots of reasons to just live where you're living now and get a portfolio loan that has none of the above guidelines.

Stephanie