2nd home loan impact on primary residence mortgage?

[Ryan Elam]

Hi there, 

I'm just starting my journey in STRs (have 1 up and running currently) and have a question....

How do 2nd home loans impact your ability to qualify for a mortgage on your primary residence? 

One of my potential partners who would need to be on our next 2nd home mortgage is also considering buying a primary residence in the next couple of years and they are concerned if we buy this next investment property under their name they would have a harder time qualifying for their primary residence mortgage. 

Any insights would be greatly appreciated! 

[Chris Mason]

Originally posted by @Ryan Elam:

Hi there, 

I'm just starting my journey in STRs (have 1 up and running currently) and have a question....

How do 2nd home loans impact your ability to qualify for a mortgage on your primary residence? 

One of my potential partners who would need to be on our next 2nd home mortgage is also considering buying a primary residence in the next couple of years and they are concerned if we buy this next investment property under their name they would have a harder time qualifying for their primary residence mortgage. 

Any insights would be greatly appreciated! 

TLDR: if anyone cares about anyone's DTI, today or tomorrow, then no one should be cosigning anything, for anyone else, unless they're married (or in a relationship similarly serious in nature, with integrated or near-integrated total overall personal finances, where "can always cosign as needed and it's not a big deal" is viable). Period, full stop.

Here's how it looks in a couple years. Your cosigner, Sally, wants to buy a primary residence, or refinance, or whatever. Her credit report and that settlement paperwork says she's on the hook for the mortgage she cosigned with you, but it's not a severable or partial obligation. If the payment due is $2k, she and you are both individually on hook for the full $2k (let's suppose this is PITIA) (when you have a boyfriend/girlfriend tenant sharing a unit, you don't let the girlfriend say "here's my half of the rent, please evict my bf but not me, thanks!" do you? Same thing here, we don't let you do that either, for the exact same reasons you don't let your tenants do it), not just half of it. So in the D column of DTI, you each have the FULL $2k. But, look at this, you probably each report only half of the rental income. The total rent might be $2700 (let's stipulate that this is after write-offs for repairs, utilities, etc), but you each tell the IRS that you individually get $1350, so all we have to offset the $2000 of D is $1350 of I.

$1350 minus $2k is a negative number, unless I'm mistaken. No different than having an extra $650/mo car payment. That will reduce each person's buying power by roughly $120,000, all else equal, and making some reasonable assumptions for what we see "in the wild" and in the real world. 

Re: "What about if we..." - nope. "But what about..." - nope! "OK, but then we can just..." - NOPE!

"But what if I make so much money that I really don't need to worry about my DTI, I'm a senior executive at a tech company drawing a $3.5m W2 annual salary and I only want a $1.25m primary residence" -- ok, yeah, you're probably fine, you can disregard this post, $650/mo isn't going to move the needle in an amount that we're likely to care about.

Good luck. :)