Bank wants partner on last deal in on new mortgage in order to qualify? There has to be another way.

[George N.]

Gonna be a bit long but here goes...

I bought a couple for 4 families a couple years ago with my brother. We went 50/50 on the deals (he is a totally passive investor, I basically manage his money for him) so we're both on the mortgages and both on the titles as TIC. On our taxes we claim 50% of the income/expenses/depreciation accordingly. Well, just put in a pre-approval application for a new mortgage and the loan officer tells me it looks like my DTI is off as the properties are performing poorly. I'm surprised since I made more money than last year and have two cash flowing properties. I know they're doing something wrong so I ask to see her numbers...

Turns out they're counting half the total property income for me which makes sense as I'm a 50% owner and that's what I claim on my taxes. But they have me on the hook for 100% of PITI on both quads. Well ya, of course it makes my DTI look like crap then. My brother's half of the income is obviously covering half of PITI/expenses. When I point out their calculation she gets back with me later in the day to let me know they'd be able to use 100% of the income from the properties if my brother is on the new mortgage and says in that scenario everything would be good to go. While that works for us right now (and importantly for now I get a letter in order to submit with offers) it just doesn't seem right. I'm tied to my brother on every deal going forward because we partnered 50/50 on a deal?

I mean I can somewhat see it from their standpoint. They can only see my half of the Schedule E on this new application yet I'm on the hook for 100% of the mortgage. But there has to be some way around this either on their side or on how I should have structured the purchase/holding. Certainly partners don't each get penalized for 100% of the debt burden while only claiming their respective portions of income. If this was the case no one would partner on everything. What about a 10% partner? They on the hook for 100% of expenses too? The lender seems competent and very on point but my guess is she isn't overly familiar with investors, especially multiple property situations.

This is a major national lender, same people I used for the purchase of my quads, my primary residence, and all my investment accounts etc. I mean, it's hard to complain, I got the two non owner occupier properties @ 3.75% on 30yrs. I'm sure portfolio/commercial lenders can work this better but I'm trying to max out on the conventional side of the house before I go that route.

What am I missing here? Appreciate any input.

[Kevin Romines]

As a former mortgage banker, and heading back in to the business, I would ask to see the specific lenders underwriting guidline on your scenario. I would also ask her to take this to the head underwriter to get a ruling on this. If necessary, get a copy of your brothers tax returns to prove to them that they have the same income and expenses on those properties and each of you own 50%. I would also show any documents that you have that show the ownership percentages each of you own, such as the purchase agreements if they showed a 50/50 relationship.

This should be do-able with common sense underwriting and or an exception due to compensating factors.