How to overcome my DTI problem

[Lacey S.]

I have been looking to buy my first buy and hold rental for about 18 months. I have enough cash on hand for a 20-25% downpayment and a contingency fund. I have an area and investment strategy in mind but when I went to get pre-approval for a loan I hit a wall - the local lender I approached told me that my DTI is too high.

I have NO credit card debt, car loan or short term debt. I have a mortgage on my primary home but it’s not huge (~115k, recently refinanced for better rate). I have a very high student loan balance (~90k) but the payment is low because I’m on income based repayment. I do not want to pay my loans off early because I am on track for them to be forgiven (through a program based on my employment field) in four years, which represents a huge financial boon for me.

The lender told me that Fannie/Freddie guidelines recently changed regarding student loans for DTI calculations. They no longer consider the payment on amount but now consider 1% of the total balance, so though my payment is only 380/mo, he has to count 900 against me.

Aside from bringing in a partner or choosing a more exotic funding route (neither of which are avenues I want to pursue), what can I do? If I shop around to other banks, is it possible that I can find one that will accept me? I would imagine most lend to Fannie/Freddie guidelines…

Thank you for your help!

[Upen Patel]

@Lacey S. Your mortgage banker is a moron and don't know how to read regulations/guidelines. Your loan should be based on your actual loan payment terms.

Find a different mortgage banker.

On a separate note, if you recently did a refi on your primary residence, then you will have a hard time getting a new mortgage as a primary residence. Fannie/Freddie is clamping down on this. They want to see that you are in your primary residence for 12 months. If you have a valid reason to move and get a new primary residence then it should not be an issue.