How is DTI calculated and when am I safe to buy another door?

Question

How do underwriters calculate DTI when I have several leased rental properties?  This may seem like an obvious question, but my last experience is that there is more to it than [rent payments] - [PITI] - [1% repairs]

I have access to a lot of credit I can use for outright purchases of rentals but I only want to buy properties if I can refinance them immediately. I don't want to buy a property with a handshake agreement that a bank will give me a loan, I want to be able to calculate the DTI the bank cares about and see when I am near that target.

Income:

[Day Job]

[Schedule C side business]

[Rental Income 1]

[Rental Income 2]

[Rental Income 3]

Debts

[Primary Mortgage]

[Rental Mortgage 1]

[Rental Mortgage 2]

[Commercial Loan for Mort 3]

[Minimum HELOC payment]

How would an underwriter actually use these pieces to come up with a decision on whether they would loan to me?

Bill B. · Answer

If you’ve been a landlord over 2 years they will usually count 100% of the new lease/possible rent. Less than 2 years it is often 70%. The rental income is counted as real income and is usually even counted as better than it is. As they only count income minus debt payment (including property taxes/insurance) but often don’t include property management, or estimated repairs.

Nicholas Covington · Answer

@Page Weil

DTI is calculated as total liabilities (normally those reported on your credit report unless some debts do not show such as additional mortgages) divided by your total verfiable income. Income that is presented on tax returns such as your side business and rental income can be added to your day job. There are many different ways to calculate though so its not a cut and paste type thing. Such as what kind of income do you get from your job. If you have been at your current job for 2+ years then normally you can count anything you get including bonuses (if recieved for 2+ years, overtime, and or commissions)

I am looking at the debts you listed and I am led to believe that there are many things missing such as an auto payment, credit card debt, student loans, etc. So make sure to keep those in mind should you have those outstanding as well.

Page Weil · Answer

@Nicholas Covington thanks for the reply. I have no car payments (paid cash), no credit card debt (I pay them off in full every month) and no student loans (paid off before I got into real estate). I have no other debt besides mortgages/HELOC. I have been at my current job for 5 years and in this field for 10.

The reason I asked was because it seems like rental income isn't counted 1:1 in terms of coming up with DTI. If rental income is just another line item on the calculation then I think I can come up with the number.

The next related question is what overall DTI does a typical underwriter require for a loan on an investment property or does it even matter if the property is rented and I have a signed lease?