Debt Will Always Outrun Income in DTI Ratio??

[Quinn Compton]

I have just been doing the number crunching on DTI Ratio going forward on these. How is it physically possible for someone to achieve 10 public mortgages? The DTI Ratio severely inflates because the income gained from the property on LTR will NEVER overcome the debt payments. For example, the debt payments on my duplex is $1,900. The total rent gained is $2,850. The DTI contribution to my personal DTI is $1,900/$2,850 = .67. Mortgage lenders will not lend a mortgage to someone with a DTI over 50%...... So how can one possibly get to 10 public mortgages without making $200,000-$300,000/year in side income? So let's say you make $300,000 in a year besides real estate. You take out 10 mortgages at an average of $200,000 each so $2,000,000 of mortgages. The debt payments on that $2mil is $17,622/Month. Add in your total income from those 20 properties. We will say it is $1600/month/property= $192,000. So you add in your $300,000 and $192,000 earned from your properties and you come up with a DTI of 43%.... Is that the ticket? You need to make $200,000-$300,000 on the side just to be able to afford the next 10 public mortgages? I don't know, maybe I am thinking of this wrong. Let me know what you think. My next thing is that if I start taking out DSCR's, will I ever be able to take advantage of the 10 public mortgages I am allowed? I am thinking probably not because income will never catch debt payments. Also how does that affect other lending? Buying cars, etc with a 65-70% DTI?

[Chris Mason]

Quote from @Quinn Compton:

I have just been doing the number crunching on DTI Ratio going forward on these. How is it physically possible for someone to achieve 10 public mortgages? The DTI Ratio severely inflates because the income gained from the property on LTR will NEVER overcome the debt payments. For example, the debt payments on my duplex is $1,900. The total rent gained is $2,850. The DTI contribution to my personal DTI is $1,900/$2,850 = .67. Mortgage lenders will not lend a mortgage to someone with a DTI over 50%...... So how can one possibly get to 10 public mortgages without making $200,000-$300,000/year in side income? So let's say you make $300,000 in a year besides real estate. You take out 10 mortgages at an average of $200,000 each so $2,000,000 of mortgages. The debt payments on that $2mil is $17,622/Month. Add in your total income from those 20 properties. We will say it is $1600/month/property= $192,000. So you add in your $300,000 and $192,000 earned from your properties and you come up with a DTI of 43%.... Is that the ticket? You need to make $200,000-$300,000 on the side just to be able to afford the next 10 public mortgages? I don't know, maybe I am thinking of this wrong. Let me know what you think. My next thing is that if I start taking out DSCR's, will I ever be able to take advantage of the 10 public mortgages I am allowed? I am thinking probably not because income will never catch debt payments. Also how does that affect other lending? Buying cars, etc with a 65-70% DTI?

I see that you've learned enough about how it works to be dangerous. :) You google searched "how does rental income factor into my DTI," and read one answer. There are actually about a half dozen different ways that rental income is calculated, scenario dependent. What you just did (the part I underlined) is owner occupied 2-4 unit rental income math. So if the property isn't owner occupied, that isn't the math that would be applicable.

Rental property math (you DON'T live there) is as follows (I'm assuming that $1900 number is the full PITI).

- If the property is not yet on your tax returns, b/c you just purchased it. $2850 * 75% - $1900 = $237.50 in the green. Add $237.50 to income. Add nothing to debts. DTI improves.

- Once the property starts to appear on tax returns, down the line. Suppose you write off $2500 in repairs and other expenses, and $3420 in property management. $2850 - ($2500+3420)/12 - $1900 = $456.67 in the green. Add to income. Add nothing to debts. DTI improves even more.

There are 4 or 5 other formulas, but I suspect those are the ones most likely to be relevant to you today and in the near future.

Reminder that the sheer number of loan originators exploded in 2020 when refi demand increased by 500%, most got very little training, since they were only hired to do refinances of owner occupied single family homes and condos for W2 wage earners, that's all they needed to be trained on. If there's a list of "top 3 things COVID refi loan officers screw up on a regular basis," one of that top 3 would be "anything involving rental income." So work with someone that's been around a while, it doesn't matter that you know how this math works, THEY need to know how it works, or they will not submit it correctly, causing a loan denial that should have been an approval, and now you've lost an entire house!