Using rooms for rent in qualifying income - Possible?

Question

Is there any way to count a room in a 4/2 house towards DTI on a future purchase?  I'm sure I already know the answer to this question and I'm going to owner occupy one room and rent 3 out LTR.  My DTI ratio is high based on my recent discussions with a mortgage lender for a refinance on my duplex under a FHA loan that I lived in for 2 years and has been converted to a STR in both units.  Unfortunately, I can only fix one year to show income - this one.  I now have a $19k loss from 2018 taxes reported.  I can fix this year and show actual income to assist in my qualifying.  I am trying to not go commercial.  The DSCR would work for this property contingent upon inspection and appraisal...old house so I could put 25% down and go commercial.  Are there any other hints for this process other than speaking to local banks and credit unions?  I'm working on that one but also trying to educate myself for future.  I had no idea deductions on taxes would hamper me so much.  I thought I was doing a good thing with write-offs.  Excellent credit so that's not an issue at all.  It's in the high 700s.

Kristy Farmer · Answer

@Andrew Postell:  I'll try to keep this brief as it is a little more involved.

1).  Loans:  Both commercial and/or residential options may apply.  I have looked at commercial mixed use properties as well as single family residences.  Likely all ugly ducklings on the market need some work so I like to put a lower down payment on a residential property and do the work with my money.

2).  Loss and taxes:  The loss was associated with a sale of a condo and write-offs.

The new taxes will be filed and refunded by February 15th.  I've already done my book-keeping and will file asap. I asked to not take all deductions and my CPA said it would be fine - this is what I referred to as FIXED.  I essentially won't write off the rehab or set up of the short-term rental (STR).  I converted my upstairs unit in 2018 from a LTR.  I actually decided to take my primary occupied residence unit downstairs and get it ready for STR this season.  My other property was sitting on the market and didn't sell after my tenant moved out of it in February of this year.  I will be renting it to a family member in January 2020 so the new lease will be signed.  I currently live here in this property shopping for a new property to owner occupy in 2020 when she comes to occupy this investment property.  I may be back in my primary residence unit (duplex as a STR in both units) and block out time in January and February if necessary.  I have not changed my address for this as my primary.  I am currently doing a streamlined finance on this property with an associated mortgage company, which will remove the FHA and PMI permanently and lower my payment another $150.  I purchased it in 2017 and it's appreciated as well as the rehab I did in those two years.  The income from this property will offset the loss on my other investment property so as to not show a loss again on this years taxes in 2019, yet to be filed.  I hope this helps, and I realize it's totally convoluted.  I do not want to do FHA again as I feel I will qualify for a conventional loan and it will automatically streamline or put 20% down.

Andrew Postell · Answer

@Kristy Farmer there is a lot here and we may not be able to answer this in a forum discussion like this but I'll ask a few questions here to try to get you to the right answer:

• What TYPE of loan are you trying to get for your next home purchase?
• Why was there a $19,000 loss on your own property?  (I think I have it correct that this is your own property....the duplex that you occupy and rent the other side?)
• It sounds like you USED to live in the property...but live somewhere else now.  Is that the case? If so, do you own your current home?  Or are you renting it?  If you do own, what will you do with it once you move out?
• Why can you only fix 2019?  2019 shouldn't even be filed yet.   Did you mean you can only fix 2018 taxes?
• And what do you need to FIX?  Was there an error in your returns?  Were you not claiming your rental income or something?
• What did you mean by the duplex has been converted into a STR?  What does STR mean?

Sorry for so many questions but I feel that the main crux here is not in your next property...but your current ones.  If you can answer those I can certainly guide you a little better.  Thanks!