How do I buy a 2nd property if my debt to income ratio is high?

Question

Hi all, I hope someone can help me since I've been watching Brandon's Webinars on buying multiple properties and I can't find the solution to this problem I've encountered. So currently I have one property (bought in fall 2019) on a conventional loan. Because I have a property under me, my debt-to-income ratio is high (over 40%). Now, as of 2021, the property is being rented out. I thought by getting it rented out, the rent will cover the mortgage and other expenses so that part of the debt will kind of cancel it out when I present it to the lender to get a second loan. But my lender said the rent will have to be seasoned for two years for them to even be considered additional income. My question is, how are people buying one property every year and getting new loans? The property that I own is a Condo and it's not big. I started small just so I can get another property later that's slightly bigger and better, but I can't do that because my debt-to-income ratio is high. I have enough to put 20% down, but because my debt-to-income is too high, I can't get a second loan. I was hoping to get a conventional loan and get the sweet low-interest rates right now and find a better place to live (or to house hack). My credit score is above 740 and I have enough reserves. So everything is fine, just the DTI is high. :( If someone can help explain or provide a workaround solution to this, I highly appreciated it. Thanks for your time!

Carlos Ptriawan · Answer

Few more things to add :- Creating strategy to reduce DTI is very easy. The number one rule is you have to eliminate all your debts by refi/cashout or switch it to a PLOC or whatever- Anyone can buy with 2.5% interest rate with convie lender as long as they have salaried W2 jobs for few years, bank account track record AND the house itself is producing cash flow even in paper so it has to be DSCR > 1.30.

Matthew Crivelli · Answer

Hard Money my friend! We look at the property and your credit score for a bridge loans. BRRR

Patrick Britton · Answer

How are people buying one property every year and getting new loans? That's super easy. We buy cheap houses. Consider this, lenders would love to lend you money but if even they say that you're not in a financial position to do it, maybe it's advice worth heeding? The market is absolutely insane right now. The only way anybody is going to make money is by selling to the greater fool. This is an incredibly high-risk time for buyers and I really don't think it's brilliant too go to extra trouble to overpay. You could shop around lenders and see if there's one who might be able to do an exception with respect to the two years seasoning of rent. But in my humble opinion, gold is not gold if it's too hot to touch.

Ed Burk · Answer

As a PML I do run into this question quite often, there are some great reply's from our colleagues thus far. I can offer some insight as it pertains to Private money. As mentioned by @Carlos Ptriawan, PML does NOT base the qualification off your Income/Debt Ratio- In fact these qualification parameters are non existent, which will address your initial concern. Rates/Fees will be higher than Conventional due to the lighter doc requirements and ease of qualifying. 80% LTV is out there. Side note- PML traditionally do NOT report the the credit repositories and not shown on the credit report. 1) Cashflow/Debt Service is the Key- Based on the Lease agreement or 1007 Rent addendum, 90%-100% of the Lease income is factored into the PITIA. Simply put, if this ratio is >1.0x/1.15x, this would qualify as your income. Done2) Not all have a seasoning requirement. Currently there are no restrictions as to when or how many properties an Investor can Purchase/Refinance at a given time. As long as there are sufficient Assets to cover the Purchase transaction, Debt Service checks out and Payment/Credit is in line. 3) Timing/Timing/Timing- Best terms will undoubtedly be with a Conventional Lender, if you can wait it out-Perfect. If the right opportunity is presented where can not wait, PML would be an excellent option to get into it.The best of fortune to you Ben

Carlos Ptriawan · Answer

@Ben Yan: I can give you few lender that can use rent income from appraisal, just PM me.

Ben Yan · Answer

Ah I see. Thank you, Shawn!

Shawn L. · Answer

Keep calling lenders. You’ll find one that doesn’t have the 2 year experience requirement. As far as I know that’s not a Fannie/Freddie thing, just an overlay that some lenders have.

Ben Yan · Answer

I've talked to other lenders and some won't do it unless it's two years. :/ Would different credit unions work?

Ben Yan · Answer

Yep, I've looked into that as well. :/

Carlos Ptriawan · Answer

As long as the house is cashflowing with 1.3 DSCR some conventional lenders can still lend it to you. Also need to make sure you payoff all credit cards,etc..No need to season for two years.