Need help calculating my debt to income ratio

[Gloria Mirza]

I'm trying to calculate my debt to income ratio so that I can see how many properties I can qualify for under a conventional loan. I understand the basics that Principal, Interest, Taxes and Insurance (PITI) all count as debt. Depreciation on tax returns if factored out and does not count as debt. Also, income is the 2 year average of what I claim on my tax returns for properties I have 2 years of return or 75% of the lease rent if I do not have 2 years of returns.

My question relates to everything else:

1.) What about "one time" maintenance expenses that I list on my tax returns?

2.) What about things like a new roof or a fridge that need to be depreciated over multiple years?

3.) What about points paid upfront on a loan that need to be depreciated over 25 years?

[Chris Mason]

Hi Gloria,

> 1.) What about "one time" maintenance expenses that I list on my tax returns?

If you kept the receipts and can prove it was 'one time' in such a way that it passes a cursory "BS Test." Paint will not pass the BS test, a new roof will.

> 2.) What about things like a new roof or a fridge that need to be depreciated over multiple years?

Write off depreciation all you want. Can add it back to your income.

> 3.) What about points paid upfront on a loan that need to be depreciated over 25 years?

Like, discount points? We don't factor that in at all. So ya buying the rate down a bunch on all your loans will help your DTI, but will not be very good bang for your buck if that's the only goal.

> What about transportation expenses for visiting rental properties.

On paper, miles driven is almost always in the 'depreciation' category if you look at the fine print. Can add it back.

> I'm just not sure how Fannie Mae calculates DTI. Are you saying that expenses are not considered when calculating DTI?

We're going to do per-property math (as if each property were a separate business or self employed job, almost). If a property ("job") cash flows positive the way we do our math, boom we have qualifying income (no debt). If the property ("job") cash flows negative the way we do our math, boom we have a monthly debt obligation (no income). 

EDIT: Also, don't write off meals and entertainment you dang realtor! We have to hit you with that DOUBLE what you write off. Just focus on writing off every mile you drive to make up for it. :)

EDIT 2: Let me tell you the tale of my house call veternarian who grossed $250k, whose taxes say he netted like $75k, and who I said makes $175k... miles driven and depreciation and one time expenses all day long baby.