Lenders - Settle the score on DTI calculations!!!

[Ryan Randall]

So, I've seen posts run the gamut here on Biggerpockets when it comes to how Fannie/Freddie calculate your DTI including your rental properties.

Let's say, for arguments sake, I have 1 rental property which grosses $2k/mo in income, and has $1k/mo in expenses (for arguments sake, it nets $1k on tax returns). 

Let's say I also make $5000/mo and I have $2k/mo in fixed expenses.

So, lenders, how is my DTI calculated?

Is it  ($1000 + $2000) / ($5000 + $2000) or 0.42%?

Or is it ($2000) / ($5000 + $1000) or 0.33%?

Maybe it's just me, but I'm tired of these different interpretations of how DTI is calculated with rental income from Fannie/Freddie's guidelines. For me, I've assumed (and had my own lenders calculate) the second one or 0.33%. However, I see all kinds of different interpretations here.

I can't help but think that the folks pushing the first one are either doing so out of ignorance, or they are attempting to funnel folks into their own private lending programs out of "fear" that traditional conventional won't work.

Any help is appreciated, thanks.

[Jay Hurst]

Quote from @Ryan Randall:

So, I've seen posts run the gamut here on Biggerpockets when it comes to how Fannie/Freddie calculate your DTI including your rental properties.

Let's say, for arguments sake, I have 1 rental property which grosses $2k/mo in income, and has $1k/mo in expenses (for arguments sake, it nets $1k on tax returns). 

Let's say I also make $5000/mo and I have $2k/mo in fixed expenses.

So, lenders, how is my DTI calculated?

Is it  ($1000 + $2000) / ($5000 + $2000) or 0.42%?

Or is it ($2000) / ($5000 + $1000) or 0.33%?

Maybe it's just me, but I'm tired of these different interpretations of how DTI is calculated with rental income from Fannie/Freddie's guidelines. For me, I've assumed (and had my own lenders calculate) the second one or 0.33%. However, I see all kinds of different interpretations here.

I can't help but think that the folks pushing the first one are either doing so out of ignorance, or they are attempting to funnel folks into their own private lending programs out of "fear" that traditional conventional won't work.

Any help is appreciated, thanks.

 If the property is on your tax returns you use this worksheet with the numbers coming of your Schedule E adding back paper losses like depreciaton  :  https://content.enactmi.com/do...

Simply as that!  If it is not on your tax return it can be more complicated but here are the answers:  https://selling-guide.fanniema...

And you need two things from your loan officer when looking to use rental income. 1. Competency, meaning they understand the above and are able to calculate it. Banks/Credit unions often (not always of course)  have "order taker" LO's which means they simple so not know how the sausage is made so other then simply W-2 income they often do not know how to handle it.

and 2, they need an NMLS number and to have a license in the state of the property. If they do not have those the ONLY product they can sell you is a Debt service coverage ratio loan because in a lot of states you do not have to be licensed to sell those. So, if you have no choice every situation will look like a DSCR loan even if it is not the best product for you.