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Updated over 4 years ago, 08/10/2020
Any cheats/way around DTI?
Hey guys! I know there aren't exactly "cheats" or just ways of going around your DTI but bare with me.
I’m trying to get a pre approval but keep running into the same responses for the most part. Mostly due to my car that I own (which is NOT an expensive luxury car) and my salary (which is between $25,000 - $30,000).
Has anybody ever been in this position of facing constant hurdles with their DTI? Any tips or ways you guys were over to overcome this part in your journey? I'm well aware I could just pay it off completely.
Also to mention I am looking for multi-families
@Ivan Maldonado
Good morning Ivan,
You had mentioned you owned your car, but it's negatively effecting your DTI. So I'm going to go under the assumption that you are still paying on a car loan and don't own it outright yet.
If that’s the case, then how much is your car payment?
The short nonspecific answer is you should refinance your car loan into a HELOC or have them factor into your new mortgage and pay off the car as a condition of closing.
The way DTI works - anything credit reportable the bank will see and use. If you can explain it away by refinancing into the new loan or paying off at closing then it can be overlooked as long as those conditions are met.
Option 2, increase income. Outside of that, there’s no way around it on the residential lending side of the house.
@Ivan Maldonado
I would see if a family member would be willing to Refi the car into their name or pay it off for you and you make payments to them. Some parents or grandparents are not keen on co-signing on a Mortgage, but they will Refi a car into their name usually. But ultimately paying off the car is in your best interest before buying a home. I don’t agree with Dave Ramsey completely, but his ideals on debt align with my beliefs. I hope this helps! Good luck Ivan! 👍🏻👍🏻
Lots of good suggestions in this thread already. My only word of advice would be to point out that since debt service is the numerator and income the denominator in the DTI ratio, focus on reducing your debt load first. Dollar for dollar, debt reductions will have a greater impact on the ratio than income increases.
Let's say your monthly debt service is $900 and your monthly income is $2,500. That's a 36% DTI. If you increase your income by $250/mo, your DTI goes down to 33%. If you instead reduce your monthly debt load by the same $250 and your income remains $2,500/mo, your DTI goes all the way down to 26%. Debt reduction is clearly the more powerful lever here.
@Steve Morris I’ll take that word of advice into account, thank you
@Ivan Maldonado
Make the rules work for you. Most of the answers you received were to lower debt. I suggest “increase income” by taking a distribution from your ira (the more the better) and then put it back within 60 days-no taxes or penalties but a 1099 showing that amount as income. Do it each year and the banks count it as income.
I found it out by accident because I converted a traditional Ira to a Roth IRA and got the 1099 and the bank counted it as income.
Banks want income and not savings accounts or money in the bank- assets don’t mean as much as the income to the banks.
If you do it in December and put it back in January it is even better to split it between years.
If you need more specifics let me know. Play within the rules and make them work for you.
@Jimmy Lieu a lot of conventional lenders will count your rental income. All have similar requirements for seasoning, but the standard rule of thumb is that you can count 75% of your gross rental income to offset your debt. Usually you are required to produce current leases to justify your statements and some want to see P&L
I always have DTI issues due to real estate being a large part of my income. However, I keep diligent books, current leases and I never have an issue with lenders.
@Ben Rogers look at Lima capital, they are great guys over there. Good options for fully amortized refinances. Property has to appraise at least 60k though and most of their programs allow you to take 70% of appraised value. Rates 5-6%. Close fast
Create an account with Turbo (Mint) and look at your ratios. They show DTI for any credit cards or other loans.
Start by paying down the one with the highest payment to balance ratio.
Refinance any non-revolving debt to a new lender.
Goal: reduce payments by the amount of a new mortgage payment.
Add tenants to your current situation, ie house hack.
Mortgage lenders often prefer more paid off cards, rather than many paid off to lower amount cards.
@Ivan Maldonado
Sell your car, but doubtful your income is going to buy a multi family now so work on gettting that up. To the side hussle suggestions: you need 2 years of self employment income to be able to use it, so that’s good long term advice but won’t help you for a while.
Do understand the concept that a car payment is amortized over a shorter period so your payment will be significantly higher than if you had a mortgage with the same balance and interest rate on a 30 yr mortgage.
Hack: always pay off your credit card in full a week before the statement ends and don't use it, or send in a check for a couple hundred bucks to make sure it reports as a $0 balance. Paying in full after your statement still shows the minimum payment on your DTI. Even a minimum $25 payment that hits your credit report will cost you $7,000 in loan amount approval based on a 3.25% rate...
@Jimmy Lieu yes. Absolutely. And most wont let you account for it until you have 2 years of landlord experience.
Honestly I don't know that you should want to cheat DTI ratios. That which protects the bank from defaults protects you from the same...
If your auto loan is poorly affecting your DTI your car is probably more than you can afford.
Trade down in car. Work more hours. Make some sacrifices to get where you need to be!
@Ben Rogers The name of the broker I used at Texas lending is Victor Contreras.
@Ivan Maldonado another way to get rid of a financed is list it on craiglist or swaplease(fee)i ran into the same issue but after the piece of hunk was gone I was approved (mine was a 911) I loved that car but I prefer my investment:)
@Ivan Maldonado
I am impressed most by your openness to hearing everyone's advice. Thanks for facilitating such a great thread!
I've been concerned about this too, as my current income does not support a feasible DTI ratio. I know there's more creative ways of funding the deal, but this thread has helped inform me on some good ideas.
Can you use a commercial loan? I believe your DTI wouldn't be an issue at that point if the deal is a solid one...maybe someone with more experience can chime in on that
Originally posted by @Jimmy Lieu:
Originally posted by @Tarik Turner:
You can also look at Non QM lenders who do not calculate DTI
If you use a non-QM lender, that means you can't use Fannie Mae/Freddie Mac then which will mean much higher interest rates right?
That is Correct rates will start in that 6% range with most non QM Lenders
@Ivan Maldonado - something I haven't seen posted (unless I missed it) that may make a difference: lenders will not count a car payment if there are 10 months or less remaining on it. So instead of paying your car off completely, perhaps you can pay it down until 10 months worth. Do speak with your lender ahead of time to verify; I do know that used to be the guideline.
Good luck!
@Keaton Smith Thank you, I believe you should never turn down insight that someone may have in this kind of industry. Happy my thread could be of help to you! Good luck in your journey!
Get rid of car note. The income is bigger problem though you cant finance much at 20-30k regardless. Look for higher paying job or write off less if self employed.
Originally posted by @Daniel B.:
@Ivan Maldonado
Sell your car, but doubtful your income is going to buy a multi family now so work on gettting that up. To the side hussle suggestions: you need 2 years of self employment income to be able to use it, so that’s good long term advice but won’t help you for a while.
Do understand the concept that a car payment is amortized over a shorter period so your payment will be significantly higher than if you had a mortgage with the same balance and interest rate on a 30 yr mortgage.
Hack: always pay off your credit card in full a week before the statement ends and don't use it, or send in a check for a couple hundred bucks to make sure it reports as a $0 balance. Paying in full after your statement still shows the minimum payment on your DTI. Even a minimum $25 payment that hits your credit report will cost you $7,000 in loan amount approval based on a 3.25% rate...
Hey Daniel, I've never heard this before. Do you have any source for this? Anyone vouch for this? I'm set up to pay my credit card in full every month, but this would be a big help for the next loan.
@Ryan K.
Source: Experience.
Check your credit on Credit Karma. The payment on the credit card will match your last statement balance, even though you have it set to pay in full. It pays the balance in full after the statement ends. You want to pay it to $0 before the statement end date so it pulls as $0 when they pull your credit.
You can find a 5 key or mortgage calculator online to figure out how much that minimum payment effects your ability to borrow based on your interest rate you qualify for, but since 30 year mortgages are drawn out and rates are so low....a $30 monthly payment goes a long way...especially if you have 2-3 personal cards you use.
You can also have your mortgage rep pay off the credit card at closing so they don’t have to count it, but there are extra fees for this and it’s easier to just pay in advance so you can get a higher pre qualification letter, etc...
As others have mentioned, 75% of the current rents in the units you will NOT be living in the 2-4 unit multifamily you are trying to purchase should get included to offset DTI.
Second comment might be a great idea.
"You can take out a 401k loan (doesn't count against your DTI) and pay off another loan (thus exchanging loans, but 401k loan doesn't count against DTI). "
Now, I would be very careful about doing a lot of these ideas. DTI requirements are there for a reason. Have great reserves because you hacking past DTI requirements pretty much means you cannot afford the place you are buying in case there are any issues like a bad tenant who doesn't want to leave.
Cool, thanks for the good tip!
@Ivan Maldonado not a "cheat" but go after some of the small multifamilies (2-4 units). When you go to borrow they can use the income off of the units. Not sure on your market, but depending on the price point and rents that might solve your problem!