Debt to income ratio won't allow us to qualify for conventional.

[Justin Knighten]

Greetings,

My wife and I purchased our first rental this spring with conventional financing. It's occupied and doing fine. I've talked to our mortgage broker about securing a loan for a second property, and according to her, with our DTI ratio, we only qualify for about a $70,000 mortgage. That isn't enough to purchase anything in this area. (I'm not interested in investing out of the area at this point, my work allows me the ability to self-manage and do maintenance myself, and I'd prefer to stay local, at least for a few years.)

I'm the only one working for now, and make a total of around $60k, with some of that being from a part time business I run. The debt consists of our personal mortgage, the rental mortgage, and a HELOC (that was used for the down payment on the rental). No other debts at all.

I've found a property that pencils out and is something we are interested in pursuing, the price is about $150,000. We have about 60,000 left available on the HELOC, however, I wouldn't want to tap into anymore than about 40 of that, in order to leave a pretty significant buffer in the event that something goes sideways. We do have some money in our retirement accounts. Does anyone have any suggestions on where to go from here? I suppose the next step would be to approach local banks and seek out a portfolio loan, am I going to run into the same income dilemmas there? I don't want to overextend myself and let leverage kick my backside, but it seems that without my income coming up drastically, we probably won't qualify for another conventional for many years to come.

I'm generally pretty slow at work during the winter, and have considered trying to do a flip or BRRRRRRRR over that time to either get a lump sum of cash to roll into another property, or have something to hold longterm with some built in equity.  Even with one of those strategies, I believe I'll run into the same issue.

Thanks for any ideas...

[Chris Mason]

Originally posted by @Justin Knighten:

Greetings,

My wife and I purchased our first rental this spring with conventional financing. It's occupied and doing fine. I've talked to our mortgage broker about securing a loan for a second property, and according to her, with our DTI ratio, we only qualify for about a $70,000 mortgage. That isn't enough to purchase anything in this area. (I'm not interested in investing out of the area at this point, my work allows me the ability to self-manage and do maintenance myself, and I'd prefer to stay local, at least for a few years.)

I'm the only one working for now, and make a total of around $60k, with some of that being from a part time business I run. The debt consists of our personal mortgage, the rental mortgage, and a HELOC (that was used for the down payment on the rental). No other debts at all.

I've found a property that pencils out and is something we are interested in pursuing, the price is about $150,000. We have about 60,000 left available on the HELOC, however, I wouldn't want to tap into anymore than about 40 of that, in order to leave a pretty significant buffer in the event that something goes sideways. We do have some money in our retirement accounts. Does anyone have any suggestions on where to go from here? I suppose the next step would be to approach local banks and seek out a portfolio loan, am I going to run into the same income dilemmas there? I don't want to overextend myself and let leverage kick my backside, but it seems that without my income coming up drastically, we probably won't qualify for another conventional for many years to come.

I'm generally pretty slow at work during the winter, and have considered trying to do a flip or BRRRRRRRR over that time to either get a lump sum of cash to roll into another property, or have something to hold longterm with some built in equity.  Even with one of those strategies, I believe I'll run into the same issue.

Thanks for any ideas...

Assuming you didn't quit your job or get a $500/mo car loan, your DTI will work itself out when you find an investor friendly lender that's including the cashflow from the property in the mortgage math, assuming you're buying cashflow positive real estate. Go to your local REIA meetup, ask who is doing their mortgages.