Debt to Income Ratio

[Raymond Greene]

Hey BP community! Question- Does my current lease payment for the apartment I am renting impact my DTI for an investment property I plan on purchasing? I have no intention on living in the property so it wouldn't be a house-hacking situation. Thanks I'm advance!

[Andrew Postell]

@Raymond Greene well, the answer here would be based upon what type of loan you are receiving on your investment property. Generally speaking there are 2 main types of loans for investors: “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money.  This is the type of loan that cares about your income and your "debt to income" ratio.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term. The most common portfolio style loan in Texas is a 20 year adjustable rate loan. These loans are easier to get but the terms are different.  These loans don't care about your personal debts and income and are usually based on the income of the property.  Maybe you factor in a little but the majority of the loan is based on the property.

Anyway, I hope that helps some with what you are asking but feel free to ask anything else if you need. Thanks!