Question About DTI Ratio

[Jim Macedon]

I have a condo development project I'm trying to get financed in the Austin, TX area. I'm running into two problems. The first is that the two banks I've talked to so far are looking at my own personal finances for the construction loan instead of the project itself.

But that actually would still work except for the second problem, which is how they are calculating my DTI ratio. They are putting all my rental property mortgages on the debt side of the ledger instead of calculating the NOI of my rentals and adding that to my income.

My understanding from reading posts here is that rentals are supposed to be handled like the following when it comes to DTI ratio (all numbers made up to illustrate the point):

W2 income: +6,000

Primary residence PITI: -1,500

Rental 1 NOI: +500

Rental 2 NOI: +500

Rental 3 NOI: +500

But that's not how they're doing it. They're doing this:

W2 income: +6,000

Primary residence PITI: -1,500

Rentals gross income: +9,000

Rentals mortgages: -7,500

In the first example, my DTI would be great, and that more accurately reflects reality as my net income is increasing with each new rental. However, in example two my net income, per the bank, is decreasing with each rental even though they are making me more money.

Is my understanding of this correct?

[Account Closed]

Originally posted by @Jim Macedon:

I have a condo development project I'm trying to get financed in the Austin, TX area. I'm running into two problems. The first is that the two banks I've talked to so far are looking at my own personal finances for the construction loan instead of the project itself.

But that actually would still work except for the second problem, which is how they are calculating my DTI ratio. They are putting all my rental property mortgages on the debt side of the ledger instead of calculating the NOI of my rentals and adding that to my income.

My understanding from reading posts here is that rentals are supposed to be handled like the following when it comes to DTI ratio (all numbers made up to illustrate the point):

W2 income: +6,000

Primary residence PITI: -1,500

Rental 1 NOI: +500

Rental 2 NOI: +500

Rental 3 NOI: +500

But that's not how they're doing it. They're doing this:

W2 income: +6,000

Primary residence PITI: -1,500

Rentals gross income: +9,000

Rentals mortgages: -7,500

In the first example, my DTI would be great, and that more accurately reflects reality as my net income is increasing with each new rental. However, in example two my net income, per the bank, is decreasing with each rental even though they are making me more money.

Is my understanding of this correct?

Welcome to the world of finance. Little of it makes sense. That being said, the general idea is that the banks account for vacancy rate and CAPEX though they may call it something different. Ask your self why they look at it that way. They aren't concerned about you or your project. Nothing personal. The loan officer doesn't want to look bad doing a loan below whatever management wants and underwriting approves. The bank doesn't want to wind up with the property and if they do wind up with the property, they want to break even or make money on it not a loss. I know, who cares what the banks want, eh? But, they are the ones with the money and you know the golden rule "he who has the money makes the rules".

Find a mortgage broker. He will have access to 300 lenders and can find the right loan for your situation.