Getting around debt to income in an expensive market

[Myles Taccini]

Hi fellow BPers!

As the title states I have an issue with debt to income I'd like some perspective on, if possible. My situation:

- I live in Orange County, California where 3br condos go for minimum 500K

- I own 1 condo (3 bedroom), looking to purchase a second (3 bedroom)

- The current debt obligation of the condo I own is $2300/mo (PITI + HOA)

- I live in 1 room, and rent the other two rooms for $1650/mo total

- I plan to move out of the last bedroom and rent out the last room in the condo for a total rent collected of $2400/mo, which seems entirely feasible, if not a bit under market average per rentometer.com

- Monthly gross income from day job ~$7000

- No other debt obligations (car payments, student loans etc.)

I'm wondering if I'll be qualified for a mortgage on a second condo, of let's say $500k. At face value, my DTI ratio is too high, as the lender will likely do one of two things:

A) Use previous tax returns showing I'm collecting $1650/mo in rent, and subtract that from my monthly obligation ($2300) leaving me with a net loss on the first condo of $750 ($2300-1650)

B) Take 75% of expected rental value (let's say 75% x 2400 = 1800), and count the difference of 1800 and 2300 as a net debt against me for the first condo.

As such, when combining the "debt" of my first condo (although I don't personally see it this way) with the debt of the second condo, my DTI will likely be above what most banks and credit unions are willing to lend on.

However I believe I would still be a quality borrower of money, as my current condo will be rented for slightly more than my monthly obligation, plus I would be renting out 2 rooms in the new condo, leaving me with an estimated monthly payment of 800-1000/mo (accounting for PITI + HOA - Rent collected) for both condos combined, still well within reasonable affordability for my W2 income.

If anyone can speak from experience, are the way lenders see these calculations variable from lender to lender, and should I just plan on reaching out to a dozen or so lenders/credit unions? Would a hard money lender be more willing to hear me out on something like this? Or does anyone have any known workarounds or input/insight about qualifying for a second loan?

Thank you so much for any advice you're able to give this newbie!

-Myles

[Nick Belsky]

@Myles Taccini

Ugh... skip all the headaches and go with a private lender.  Better or equivalent rates, way less docs, no credit reporting, and less stressful. 

Get with a mortgage broker. The Credit Unions and Banks are going to throw all kinds of crap terms at you. Get a straight up 30 year fixed rate with no balloons and fully amortized all day long with DSCR loans.

Cheers!