Debt to income ratio too high

[Douglas T.]

My mortgage broker preapproved me last March for a loan amount of $86,250. Last week, I asked him about a cheaper unit where the loan amount would be $81,750. Since nothing has really changed since my preapproval last March, I thought I'd be good to go. My income is the same if not slightly higher and the only debt I have the mortgage on a rental condo (which is currently rented out). My credit score is higher than last year (don't know if that matters in this case). The units are identical in same bldg, so taxes and HOA are exactly the same. I also have reserve funds in savings for the rental.

This time though, he says my DTI is too high - 63% and he needs it under 50%. When we did the preapproval last March, I hadn't yet found a renter for my rental unit. The mortgage broker plugged in $1200/mo in rent. I rented the unit 3 months later for $1150/mo. He says my DTI is too high because it was only rented for 6 months in 2017. He says before he calculated it being rented for 9 months of the year... this is where I start to have problems understanding this.

I don't understand how he preapproved me last year when I didn't yet have any rental income history from my rental unit.  And, now.. when I have rental income, he can't.  Before I did this, I was under the impression I'd need a couple of years rental income before I could count it as income for another mortgage.  This mortgage broker assured me he could use the rental income as soon as I got a lease on the place.

This guy has always been really nice in the past, but he sent me a very short email on Friday night asking if a parent could co-sign (I'm a 45 year old man). He didn't give me any other options and didn't explain any of it. Can I make a larger downpayment to get to the target DTI? Can I pay down the rental unit's mortgage a bit to get to the target DTI?

I do have an 80 year old Mom who would co-sign, but of course I want that to be an absolute last resort.  I don't want my Mom's name on my property if at all possible.  My main concern is that she probably won't be around in 5-10yrs.  So, what happens when she passes away and my brother, sister, and I are trying to deal with her finances?  Are my brother and sister then going to find themselves in the middle of this?  I've been stressing out all weekend over this.  I have the perfect unit on the market right now that I want to put an offer on and the price is a steal, so it won't last long.

I would really appreciate any help in understanding this situation..thx

[Kevin Romines]

It should not be a problem on a Fannie Mae loan. If you haven't filed your tax return just yet, the lender will use your lease agreement minus 25% for vacancy and maintenance, CAP X and management and then subtract the PITI. If it is a positive number, it will add to your income, if it is a negative number then they will add it to your debts. Most rentals are close to debt neutral. So you should not have a debt ratio issue based on what you said above.

If you have filed your tax return, then the lender will use the net income off the tax return divided by the number of month the property was placed into service last year.