How is DTI measured when you spent a lot on improvements?

Question

I'm hoping to be able to either get a cash withdraw refinance or a HELOC so I can buy another building, but I have crappy DTI ratio if all my improvements are held against me.

I just spent ~70k in improvements for my 4-plex that I live in.

Based on my professional earned income and 75% of the rental value, it looks like I can qualify for a loan to refinance the place if I spent nothing on improving the property this last year.  However, since a significant portion of the income went into improvements on the property (hardwood floor, paint, new decks, new kitchen, etc), my fear is that when I turn in my tax return, it will look like I make less money because of the improvements.

Do I have to wait a couple more years and not put money into my properties to be able to show 2 years of higher income so I can have a good enough DTI to get a loan?

When looking at income, are improvements subtracted from your income like maintenance?

Thanks so much!

Todd Harvey

Berkeley, California

Chris Mason · Answer

> When looking at income, are improvements subtracted from your income like maintenance?

They can be excluded, sometimes.

Would need to thoroughly document that they are one-time expenses. Did you keep receipts and invoices and the like, and because we're about to disclose improvements to the underwriter did you have the correct permits?

Realistically I'm going to guess that we'd be able to get some significant chunk of that $70k excluded, but likely not all of it, depending on what the paperwork exactly says.

Ultimately it'll be an underwriter judgement call based on what 'makes sense.' And this is one where if it were my deal I'd nudge it to the correct underwriter.