DTI calculation for Mortgage, Rental income calculations

[Randy P.]

I am planning to buy a new rental property with a new mortgage(Conventional 30 year) but was wondering how my old rental property counts in my DTI because I believe my lender is calculating it incorrectly. I currently work a day job and earn around $75,000 W-2 Income per year. I own a duplex that has a mortgage on it and is fully rented out(I do not live in either unit) that was purchased in August of 2018. Income from the property per month is about $4000 gross, $3000 goes to Mortgage(PITI) and about $500 misc expenses things netting me around $500 a month. This rental income reflects on my 2019 schedule E.

Monthly Income

W-2 Income : $6,250

Old Rental Income : $4000

Old Rental Mortgage(PITI) : $3000

Old Rental Expenses : $500

The new property I am looking at would cost about $700,000, of which $500,000 would be financed. The way I understanding it, my current DTI should be 0% since my income from my old property completely covers my PITI for itself and expenses. The calculation should be $0/$6750, since $6250(W2)+$500(net rental income). My lender is calculating it differently by adding my W2 income to my rental income, $6250+$4000 for my income and putting my PITI and expenses and debt, so $3500/$10250. When applying for the new loan the PITI would be $3,500 and calculated rent would be $3750($5000*0.75).

Using my calculations, it would be $3,500/$10,500 = 33% DTI

Using their calculations it would be $7,500/$14,000 = 54% DTI

Which calculation would be the correct method? Thanks in advance.

[Harjeet Bhatti]

@Randy Pang The lender will calculate  Sch. E income from 2018 and 2019 tax return. You can use Fannie Mae worksheet to calculate right income.  Both calculations are wrong and without looking at  Such. E income no one can calculate right income.