Can I use a lease agreement to offset My Overall DTI

[Delmas Gibson]

My Wife and I currently have a primary residence, and potentially looking to purchase an investment property(SFD). I am wondering if I found a property and also a tenant that has signed a 1 year lease agreement, will a lender accept the lease and not count the mortgage against my Overall DTI??

[Eric Veronica]

@Delmas Gibson I have to disagree with some of the other comments here.  If you are buying a rental property then the lender should be able to use proposed rental income when calculating your debt ratios. This is accomplished by the lender ordering a comparable rent schedule (form 1007). The 1007 gives the lender a market rent for the area. An investor friendly lender should be open to using this proposed rent

Scenario-let’s say you currently make $10,000/month w-2 income. You have a owner occupied mortgage payment of $3000. Car payments of $800/month and student loans of $900/month. This totals monthly debt of $4700. With a monthly income at $10,000 you are at a 47% ratio. No way you will qualify for an investment property mortgage. right?

Not so fast.

Let’s say this property you are purchasing will result in a $1000 monthly payment. Let’s also say that 1007 rest schedule form comes in with expected monthly rent of $2000/ month. Our approach is to hit the rent with a 75% vacany ratio which gives you expected monthly rent of $1500/month. We then deduct the $1000 mortgage payment from the rent and you end up with $500 in additional monthly income.

The awesome part is that the $1000 monthly payment is not counted against you at all because it is completely negated by the rent. The awesome-er part is that the $500 expected income can actually be used as qualifying income!

Debt ratio before rental purchase $4700/$10000 =47%

Debt ratio after rental purchase = $4700/$10,500=44.7%

Taking out a new $1000/month mortgage actually lowered your debt to income ratio!