Question about financing and debt to income ratio

[Gayle Melnick]

Hi all,

I'm currently under contract for two single family townhomes. These are my first investment properties and I plan to keep them as rentals. They are both cosmetic rehabs.

I'm using conventional financing with 25% down. I also have a VA loan on my primary residence. I have the capital for down payments and closing costs as well as my anticipated small rehab costs on both homes. The problem I'm running into is that with the 3rd mortgage, it pushes my debt to income ratio to 50%. My lender advised me that it needs to be at 45%. He is not including the projected rental income in this calculation, he's only considering the income from my job.

What is the process for getting the projected rental income included in my debt to income ratio? I asked my lender about it and said he would talk to underwriting because the rules have "recently changed". Does anyone have experience with this? I just wanted to see what people more experienced than me have to say about it so that I can understand my options when my lender gets back to me.

Thanks,

Gayle

[Zack Karp]

@Gayle Melnick

GREAT question, and no the rules have not changed.  Either they don't know what they are doing, or they have an overlay, which are their own guidelines on top of the actual guidelines from Fannie Mae and Freddie Mac.

You can ABSOLUTELY use the projected income for the 2 properties that you are buying to wash against the PITI payment for both properties.

My advice is to RUN while you hopefully still have time.  Not sure when you are supposed to be closing, but if this problem came up, who knows what other shenanigans might come up later on.  Cut your losses and work with someone who knows what they are doing (or doesn't have overlays).

TYFYS and best of luck!