Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
Hello, I am looking for some advice/clarification on how conventional (meaning 30 year fixed) loans work for rentals when using a partner/co-borrower.
A couple specific things are;
1) How does joint DTI work? Meaning if I have say 1500 in monthly debts and 3000 of income mine would be 50%. If me partner has 1000 of debt and 5000 of income theirs would be 20%. I assume our joint would be 2500/9000 or 28%?
2) Does it matter how long our joint account has been open as long as the funds can be traced back to one or the others individual bank accounts?
3) If we have a rental property where 75% of rents cover PITI, does that mean that neither of our DTIs would be negatively affected as I understand it?
Hello, I am looking for some advice/clarification on how conventional (meaning 30 year fixed) loans work for rentals when using a partner/co-borrower.
A couple specific things are;
1) How does joint DTI work? Meaning if I have say 1500 in monthly debts and 3000 of income mine would be 50%. If me partner has 1000 of debt and 5000 of income theirs would be 20%. I assume our joint would be 2500/9000 or 28%? 2) Does it matter how long our joint account has been open as long as the funds can be traced back to one or the others individual bank accounts?
3) If we have a rental property where 75% of rents cover PITI, does that mean that neither of our DTIs would be negatively affected as I understand it?
Thanks, Dan Dietz
1). On the right track. $2500/$8000 = 31% DTI without the new loan payment factored in yet.
2). You can each have your individual accounts. It doesn’t have to be joint, since you both presumably will be jointly on the loan application.
3). If the rental property has been in service for 1 year or more, and you already claimed them on your tax returns then you use what you claimed. The 75% or 25% vacancy of the lease applies to the subject property that you’re buying or any property that was purchased after the last filed tax returns.
It’s normally easier to qualify for investment property than a primary home but the biggest hurdle for most investors going the conforming route is having enough funds for the down payment and closing costs.
One thing I did not mention is even though my partners and I are at 30 units right now, they are all held in various LLCs in both cash positions and in our SDIRAs and SOLO401Ks. So the world of 'conventional loans' is new to us other than for our own homes.
A couple of other things that came to mind as I drifted off to sleep last night;
1) I assume it does not matter if ALL of the down payment comes from one partner or the other?
2) One property in particular that we are looking at is a duplex where each has their own garage that ALSO has an additional 4 car garage. It would NOT need the income from the garage to qualify, but is there would that make things 'non conforming' in any way? I am actually thinking of using it for my 'day job' business for storage.
3) Fast forward 10 years down the road..... I one partner wants out, does the property need to be refinanced at that point, or can one partner somehow 'take over' or in some way become the only one left on the loan?
Any thoughts our there? @Chris Mason do you have time to chime in?
Thanks, Dan Dietz
Be cautious. If you're not serious enough about the other person to marry them (kids are an 18 year commitment), are you sure you want to take out a mortgage (30 year commitment) with them?
Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
7y
@Chris Mason I should have been more clear on my original post I guess :-)
This person is strictly an investing partner, not a domestic one. We have known each other for years and invested together for the last 5 or so using LLCs and commercial loans with great results.
We are now looking at how to lock in great rates for a longer time frame as we are comfortable with our business plan working as planned and expect a very high probability that we would hold these for at least 15-20 years if not indefinitely.