Refinance a house

[Xu Som]

Hello BP,

I recently bought a house for the family and have another house up for rent.  The other house is a relative I know and they gave me permission to do what I want with the house since they moved out.  So it's currently under rent. My question is that I tried to refinance the house to get it under my name, but was denied because my debt to ratio would be too great due to the purchase of the new house that's under my name.  Are there other ways to go around this?  I'm still quite new to the RE investing world so any advise would be helpful, thanks!

Thanks!

[Jon Holdman]

Many lenders will require that you have two tax returns showing rental income before they will include the rental income when qualifying for a loan.  They will use the actual numbers from the tax return in determining the net rental income.  Most will add depreciation back in because that's a non-cash deduction.  For a new purchase, they use the formula:

net rental income = (75%*rent) - PITI

If that's positive, its considered income and helps DTI. If its negative, its debt and hurts DTI. Personally I think that's formula is a bit on the optimistic side, so you really want to avoid buying something that comes out negative with that formula.