DTI is too high with 2 mortgages in my name

[Charles Hathcock]

Hello, We have 2 homes so far, one is rented out and we live in the other. Both are FHA as the bank said it was legal since we lived in the first home for more than a year. My problem is that my credit score has tanked due to my DTI (Debt to Income Ratio). I have 2 vehicles and 2 homes in my name along with other credit cards for rehabs. Can I put one or both of the home loans into an LLC? I just called today and both lenders said that the LLC couldn't assume the loans. There's got to be another way around this, we just don't know of it yet. Any advice is greatly appreciated.

My lenders are Wells Fargo and Safe Credit Union.

[Wade Freeman]

Hey Charles, you're in the same boat as a lot of real estate investors starting out. DSCR loans are a great way around high DTI!

Also, to clarify is it your credit or dti causing you the problem?

[Dominic Pizzi]

I agree with Wade, a DSCR loan and lender is a benefit to combat a high DTI

[Kevin Post]

You would have to refinance into not just a DSCR loan, but a DSCR loan that doesn't report to credit. Some DSCR lenders do still report to personal credit, regardless of an LLC. Most likely, this would come at a higher interest rate then your current FHA rate. Secondly, if you put less then 20% down when buying the homes, you might not have the equity to refinance into a DSCR loan. Reach out if you have anymore questions.

[Charles Hathcock]

Quote from @Wade Freeman:

Hey Charles, you're in the same boat as a lot of real estate investors starting out. DSCR loans are a great way around high DTI!

Also, to clarify is it your credit or dti causing you the problem?

Hey Wade, my DTI is really high which is causing my credit score to drop.

[Katherine Blazer]

Are you planning on living in the next house and what does tanked mean to you?

DSCR loans are a great way to pick up rentals. They aren't designed for primary residences. confirm the lenders are using the rental income to offset those mortgages. If you are planning on moving into the next home, you can use 75% of the projected rent of your current home. Once your file taxes and claim the income for your first home you should see your DTI drop.

[Eliott Elias]

Your lender will not allow the deed to be transferred in a LLC. Your DTI should be reduced with a tenant in place.

[Brandon Gale]

@Charles Hathcock your DTI in itself won't drop your credit score, there are certain aspects that correlate, but there's alot more to your credit score than just total debt. I know many people with "bad" DTIs in the eyes of lenders, but still have good credit scores. I would try to look more into what exactly is causing your credit score to drop and get that worked out.

Like others have said, DSCR loans are an awesome tool, I have the same DTI issue where I had the cash to buy more property, but banks wouldn't approve me. I finally discovered DSCR loans and quickly closed on a property with no issues. But keep in mind, credit score will play a big role in what your rate is on a DSCR loan

[George Randall]

CreditKarma does a pretty good job of showing where your credit trouble spots are. As previously mentioned, high DTI won't tank your score, as credit bureaus typically don't get much into what your income is, just your credit utilization and performance. You mention credit cards. If your credit card utilization is over 10%, your score will begin to fall. Over 20% and you'll definitely see it. Higher than that and it's likely the source of your woes. Any late pays would amplify the impact. Hope this helps!

[Dave Skow]

@Charles Hathcock- thanks - the credit score is likely being impacted by the revolving debt you mention and not the FHA loans ....1) try to keep the rev card balances under 30% of the max card limit 2) have you tried to consolidate / payoff the rev card balances so that the required payment is lower than the present payments ? 3) does your primary home have equity in it so that a HELOC might be possible to use to payoff a car or the rev cards ? You can likely change vesting on the homes to LLCs but this wont change the loans or the DTI calculation 4) can you sell one car to get ratios into line 5) consider refinancing the primary home refinance to a conventional loan if this is possible

[Stephanie P.]

Quote from @Charles Hathcock:

Hello, We have 2 homes so far, one is rented out and we live in the other. Both are FHA as the bank said it was legal since we lived in the first home for more than a year. My problem is that my credit score has tanked due to my DTI (Debt to Income Ratio). I have 2 vehicles and 2 homes in my name along with other credit cards for rehabs. Can I put one or both of the home loans into an LLC? I just called today and both lenders said that the LLC couldn't assume the loans. There's got to be another way around this, we just don't know of it yet. Any advice is greatly appreciated.

My lenders are Wells Fargo and Safe Credit Union.

Putting your homes/loans into an LLC won't solve your DTI problem. Even with an LLC, your debt is personally guaranteed so it will count against your DTI. Also, with a DSCR loan, your DTI on a conventional loan will be impacted because you have to disclose the debt (again, personal guarantee).

If you purchase with a DSCR loan, your DTI won't preclude you from buying. You'll need, depending on where you buy, at least 15% down.