Funding

[Sarah Jones]

I have 3 houses each $2700 a month in mortgage and no other debt; no credit card, no car nothing else. My total expense is $2700*3=$8100 monthly. My question is in order to buy my 4th house 1million dollar FHA 3.5 down house which will be $6000 a month. I have to show monthly income of $31,333 per month.. because the bank will only let me borrow up to 45% DTI ratio... is this correct? I think im doing something wrong.. becuase i know others who have 12 houses and i dont think they show that much income... what is the best way to get this 1million dollar house $6000 a month?

[Jon Holdman]

The existing house are rentals, right? If so, and if you've been a land lord at least two years, the calculation for those is different. You take the actual income from your tax return. That's the rent you collect less all actual expenses. Interest on those mortgages is an expense, principal is not. Some lenders will let you add back the depreciation. Is that number positive or negative. If it's positive, it helps your income. If its negative, it increases your debt.

Pretty sure you're not going to get to a 45% DTI on an OO loan. 28% is the traditional guideline, but I know that has pushed up. But lets use that number. For a 96.5% LTV loan, 30 years, 4% interest and a million dollar property. I get a P&I payment of $4607. IDK what your insurance and taxes are, but perhaps the total PITI is $6000 as you mention. Using the 28% factor you need monthly gross income of 21,429 or annual income of $257K. Your DTI calculation is $6000 / $21,429 = 28%.

Now lets add in the rentals. Lets say the net income on the rentals is $1,000 a month. That adds to the income side of the DTI so it becomes: $6000 / ($21,429 +1000) = 26.7%. OTOH, say the rentals have a net loss of $1000 a month. Now your DTI is ($6000 + $1000) / $21,429 = 32.7%