Frustration/venting post any ideas about my situation with DTI

[Armando Montrond]

Here is my current situation. 

I currently am house hacking a 3 unit home in Worcester MA. (FHA at 2.25%) I have lived here for 1 year and want to purchase another property with a low down payment. I

have found credit unions will do 5% down on 1-2 units but the banks wont use my rental income that i earned this year because I don't have 2 years of rental income history. 

Even if i had 2 years of rental history they will only take between 55-75% of that income.

I don"t have a lot of debt, I have my mortgage payment, and a student loan totaling 3900 a month. 

I W2'ed 140k last year, so if that max DTI is 45% (5,250 allowed per month in debt) and I already have 3900 in debt, I cant have a mortgage payment above $1,350 PITI? Am i doing this math right?

So even if i put 20% down on a property, with 5-7% rates, the max purchase price I can do is $265k and with a 5% down im looking at 125k which is pretty damn near impossible around here. so looks like I would have to look for out of state investment property which is not ideal. Is my rough math right? How are people buying multiple properties but getting around the 45% dti? 140K a year is not small money either so its wild that I couldn't qualify for anything other than those incredibly low amounts

Am i looking at this the right way? Is there other ways to get this done (other than out of state investing) This is mainly a venting/frustration post cause I am trying to build out my portfolio but seems like this is a tough spot to be in especially if a lender is not willing to look at the rental income that will be on my tax returns

[Robin Simon]

Quote from @Armando Montrond:

Quote from @Rick Albert:

It's weird that they aren't counting the rental income from the other units. People do it all the time when they move and rent out their previous primary home. It is a triplex or are they not legal rentals? That could play a factor.

You could refinance the property you are in into a conventional loan, and that will allow you to use the FHA loan again. Do it now while you are a primary occupant so you get the best rate and terms.

Lenders will almost always use 75% of the income. They are factoring in vacancies, repairs, cap x, etc. 

How much are your student loans in total and the monthly payments? It only makes sense to pay it off completely if it increases your DTI and the interest rate is high. Otherwise stay the course.

you can only imagine how rattled i was when lenders were saying they wouldnt count it unless I had 2 years of rental income history. it is a legal 3 family. I could refinance and get another FHA but then I would still run into the same problem where the DTI would stop me from getting another property. My student loans arent that expensive, about $300 a month, paying off that balance would be an option but thats money I would rather use for capital. Maybe I gotta keep hunting around for other lenders

The thing about conventional / FHA is that underwriting and rates are pre-set by the quasi-gov agencies, so shopping wouldn't really help. As mentioned above, DSCR is tailor-made for you in this situation (scaling a portfolio, no DTI) - although cash-flowing with a low down payment will be challenging in this market (you can still likely qualify for a DSCR loan with DSCR <1 if you are willing to lose money in the short term though...)