Does owner financing count toward DTI?

Question

Does owner financing or private loans in general count toward DTI? I imagine the lenders will not know unless you tell them? Although I guess interest paid on the loan would show up as an expense on your Schedule E in your taxes.

Albert Bui · Answer

yes it will count on full doc conventional or other full doc loans in the 1-4 unit space, It show up in/on:

- your tax returns on schedule E or your 1065 partnership return schedule of real estate

- on your insurance policy as loss payee/mortgagee (your lender will be notified) but this shows there is a lender

- on your title policy there will show a mortgagee on schedule B where all the encumberances are listed along with taxes/liens/etc

Plus if the property is positive cashflow why wouldnt you want to show it as it will improve your DTI.

Will it count as a financed property in fannie's 10 financed properties count ? yes if you personally (as an individual) signed the promissory or mortgage note, yes (so long as its a 1-4 unit residential property).

VOM or verification of mortgage for payment history on every mortgage is required on fannie/freddie loans and most other full doc loans too (VA/FHA/jumbo/etc) in the 1-4 unit residential space. They will want to verify you made on time payments on all of the mortgages that you were/are personally obligated on in the last 12 months even if you're paying the mortgage off.

Most lenders in the conventional space can have 1x30x12 (basically 1 30 day date in the last 12 months) but usually not more and no 60 day lates (0x60x12) and definitely no 90 day lates (0x90x12).

Hope that helps in all angles of attack on how to view the considerations for this private note from income, credit, where it will show up, whether or not to list it on the app or not (personal choice but they will most likely find out anyway).

So ultimately the answer to your original question is it "depends," as with all answers in tax, lending, finance, and life.

@Carlos Valencia@Matthew Kwan

Matthew Kwan · Answer

Or you could try looking into DSCR loans as it only looks at the rental income of the subject property and reserves. As for full doc loan, it will look at your employment history and income which it will have influence towards your DTI @Carlos Valencia @Albert Bui

Travis Reed · Answer

Thank you all for the responses. I think I got my answer. And to clarify, I am not trying to decieve a lender, I am just trying to determine industry standard practices and hypothetical scenarios. Thank you!!

Jay Hurst · Answer

@Travis Reed  Not to be too snarky here, but when you start to think about ways to fool the lender you might not want to keep going down the path. Omission is still fraud. Assuming you have a note to pay on the seller financed deal it is still an obligation and needs to be disclosed.

These kinds of threads pop up over and over on this board. And for the life of me I simply do not get it. Buying investment real estate that is bringing in rent should at the very least NOT effect your debt to income negatively in any meaningful way, and possibly improve it. You just need a competent loan officer who actually deals with borrowers with rental property and understand how to work with a schedule C on your tax returns.  But, the amount of these similar questions tells me that  a lot of LO's do not know how to do this.

Ned Carey · Answer

@Travis Reed The simple answer is yes and failing to report it is a crime.

Michael Anderson · Answer

We don't really have enough information to accurately answer the question. You didn't really specify the circumstances of the "private loan in general" this could be a private mortgage note, unsecured loan... etc. A lender would have to dive deeper into your specific scenario. I am running into the same concerns as I am approaching my 10 loan limit. It's not about deceiving or hiding things. It's about following the guidelines as to what needs to be included, and what can be omitted from a URLA loan application. For example, loans in an LLC which you are not "personally obligated" on do not count towards your 10 financed property limit.

If you have a specific situation you are working through I am happy to give you a hand. I work a lot with these types of scenarios.

Andy Webb · Answer

Yes, and as a mortgage it will count against your FNMA "10 financed-properties buckets" if you are worried about those.

Travis Reed · Answer

This is what I needed to know. Thank you.

Luis Somoza · Answer

Yes, there is a note that will be recorded at the courthouse that will likely come up in a fraudguard or equivalent search which many lenders perform. When you put that you own the property on the application, they will ask for your insurance. Guess what the insurance policy will show? A loss payee. Then you need to provide the mortgage note.

If you indicate you rent, they will want to see a verification of rent, which you won't be able to provide, and then you have to indicate that you own it.

Also, many lenders do public record checks, and a recorded mortgage will come up.

Remember you are singing legally binding documentation, and are required to disclose it.

Jon Puente · Answer

Hey Travis,

I would absolutely let a lender know if you have a property being seller financed or private financing on the side.  If it generates income and you declare income, then it shouldn't affect your ability to get a loan overall.

However, if you do not disclose, I can almost guarantee that is pops up during underwriting and may have an affect on your deal.  Has it slid past UW before? Sure! However, most lending companies have gotten VERY aware and dig deep to make sure that loans being originated right now are accurate and repayable, in efforts to avoid another 2008.

Just be upfront and truthful, and it shouldn't be an issue.

Does owner financing count toward DTI?

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