Fannie DTI ratio with new rental income

[Matt Holmer]

Quick question regarding DTI for a Fannie loan.

As I understand that new rental income (less then 2 years) is calculated as:

Gross rent * 75% - DITI = income added 

What I don't know is whether or not the DITI still counts as a liability.

For example if DITI is 500 and rent is 1000, that nets 250 of income based on the above calculation. Does the $500 still count as a liability or is it completely wiped out?

Hope thatquestion makes sense. Thank you!

[Chris Mason]

Originally posted by @Upen Patel:

@Matt HolmerPer your example $750 is credited to you as income, while the $500 PITI shows on the debt side. So your debt is wiped out and in-fact your DTI goes down as you have +ve rental income.

 Not quite, my man. :)

If PITI is $500 and lease says $1000 (& $1000 is credible, etc), that's $250/month in qualifying income and *nothing* is entered on the debt side of DTI. Unless there are lender-specific overlays at work, that is.

Check out "Step 3" on this form from fanniemae.com dated 9/30/2014: https://www.fanniemae.com/content/guide_form/1038....

And I quote: 

"If the combined results of [rent*75%-PITI] is *positive*, add the positive amount to the borrower's monthly qualifying income. Because the PITIA expense was included in the calculations above, do NOT NOT NOT add it [PITIA expense] to the debt-to-income ratio."

YMMV, I always just use the numbers/procedures/etc directly from Fannie Mae, ignore our internal company forms/procedures/etc, and start yelling at people if our company's internal stuff is incorrect (this amounts to an overlay, I was recruited on the promise that this firm has no overlays, so that's my leg to stand on when I'm raising hell :P ). 

We can sell it on the secondary market as a FNMA loan using FNMA forms/guidelines and 100% disregarding our own forms/guidelines, even if our underwriters don't like being out of their comfort zone, which is why the yelling works.