Does HML count against your personal DTI?

[Tae C.]

Hello all,

Not sure if this should go into Personal Finance or not. Anyway, question is as stated - does your hard money loan count negatively towards your DTI ratio? I am wondering specifically in the context of if you're trying to qualify for a mortgage/loan/etc from a bank type of institution? I thought I had heard that Hard Money will not show up on your personal credit...however, that doesn't mean it still won't be considered as personal debt? I would guess it also matters if it's a non-recourse loan or not.

I ask bc it most definitely popped up on my recent cash out refi of a rental property. This may be a very dumb and obvious question, but I would still love the clarity for future reference. Thank you. 

[Chris Mason]

Originally posted by @Peter Tverdov:

Bumping this thread and @Chris Mason maybe you can add input here but if a HML counts towards your DTI, how does someone ever refinance out of it?

Ex: HML interest only is $3,000 a month. That is a massive amount of monthly debt to have in addition to your primary mortgage and any consumer debt that you would have. I would imagine it would skew ones DTI ratios way past the front/back end ratios banks are comfortable with. So how would you refinance out of it if you were fix and holding using HML vs fix and flipping it with a HML.

 If you have 5 flips going on at once, all in hard money and with no rental income coming in, then you're screwed and that's that.

If you have a few buy-and-holds with tenants in place that are in HML, it works because when you refinance your new P&I payment is included in DTI (& partially or entirely offset by the rental income, to boot), not the old HML payment. Sometimes this means that you're "forced" to refinance out of hard money all at once, so all the new P&I payments can be used, rather than 1 new payment and 4 old HML payments. We call these "concurrent refinances." 

Note that the first time you refi to exit the HML world, it's often going to be a pain in the butt. Just being real here. All the things that caused you to get HML to begin with, have to be worked through. On top of that, the HML might not care about wonky title issues, but Fannie certainly does.