FHA/203K debt to income ratio woes

[Lisa Carter]

Hi everyone,

I’m hoping for some ideas.

I'm new to the forums but have been lurking for a few months. I've owned SFR's before, but sold my most recent one about 4 years ago. May I just say, criteria has changed?!

I've been preparing to purchase a 2-4 family rental property (buy and hold, and to live in myself) for the past four years, trying to pay down debt, and save money. I've been reading many books on the subject – including Brandon’s book, and researching financing, came across BP, been reading like crazy, am up to Podcast 79.

I have talked with at least 7 lenders in the past two weeks so it has been quite an adventure. The following includes information from the best lender I have found.

That brings us to now: I have found a duplex with a low enough price point that works for me, but it does need repairs (electrical, roof). The lender prepared an FHA/203k program, however, I squeak through the rules with the debt to income ratio issue, and that is with no repairs to the building. In that case, the lender require sign offs from various contractors that the building is safe for 5 years (iffy). It got tossed when the lender discovered that I have a side business (Schedule C) that has a loss, too low with the already mentioned debt to income ratio. The lender did not analyze the Schedule C, and only looked at the top sheet, but depreciation can be added back in. We are talking fairly small amounts, but enough to sway my tight debt to income ratio, and the Schedule C depreciation added back in is likely not enough to make up for it.

The lender said the installment debt is the only type of debt that can be subtracted from the equation, there are only two, I paid them off this weekend. I can't pay every debt, and apparently this won't work to do so. I spoke with my accountant about the Schedule C, and it is in my best interest to keep filing it the way it is currently done. It is possible to skip a year to do the building purchase and then resume the Schedule C, but even then I would be possibly qualifying for the building in 2016, a long ways away, provided lending criteria remained constant - which it may not.I am frustrated to wait that long, and I will not accept not taking what I’m able to claim, so that I can make my building purchase… there has got to be a way to do this.

Perhaps someone has a solution or something I or this lender hasn't thought of?