Question about qualifying for an investment property.

[Herm M.]

Let's say a person makes 11k a month and his/her monthly credit obligations add up to 5k monthly (this includes three mortgages). This person is essentially tapped out as far as debit:income goes.

This person wants to buy a duplex rental for $550,000. With 25% down , the loan amount is $412,500. The PITI comes out to $2800. The monthly rental income is $5300. The lender will give credit for 75% of that, let's say $4000/month.

As far as qualifying for a conventional loan at 3.5% goes, which of the following is true?

a) The lender will say that the building is self-sustainable because the $4000 rent covers the $2800 payment. The lender will give you the loan.

b) The lender will say that you are signing up for a new monthly obligation at $2800 and so you need to meet 45% debt:income and so you need $5800/month in additional income in order to get this loan. They'll give you $4000 rental credit and require an additional $1800 of monthly income.

I have heard mixed things on this. If b is the case above, then that disqualifies this buyer.

[Herm M.]

Originally posted by @Chris Mason:

Originally posted by @Herm M.:

Let's say a person makes 11k a month and his/her monthly credit obligations add up to 5k monthly (this includes three mortgages). This person is essentially tapped out as far as debit:income goes.

This person wants to buy a duplex rental for $550,000. With 25% down , the loan amount is $412,500. The PITI comes out to $2800. The monthly rental income is $5300. The lender will give credit for 75% of that, let's say $4000/month.

As far as qualifying for a conventional loan at 3.5% goes, which of the following is true?

a) The lender will say that the building is self-sustainable because the $4000 rent covers the $2800 payment. The lender will give you the loan.

b) The lender will say that you are signing up for a new monthly obligation at $2800 and so you need to meet 45% debt:income and so you need $5800/month in additional income in order to get this loan. They'll give you $4000 rental credit and require an additional $1800 of monthly income.

I have heard mixed things on this. If b is the case above, then that disqualifies this buyer.

 $5300 * 75% - $2800 = $1175.

No debt will be added to DTI.

$1175 will be added to income.

That is the calculation specific to the exact scenario presented. People think there is "the" way it's done. There is no "the" way, there are like 5 ways, depending on the exact scenario. Most loan originators don't really work with a lot of investors.

 This property is in Oakland. Help me with this loan. I'll send you a message.

[Joseph Firmin]

A few ideas for you: 

• 1) Make a deal with the seller to carry a note to get your DTI more in line with the lender's criteria.
• 2) Get a new lender (Esp. a portfolio lender, there are many with differing criteria)
• 3) Get a bridge loan to get the property to a point where the refinanced loan will put you in a better DTI bracket.
• 4) Refinance all your mortgages together into one loan - then you may be able to have a better DTI when looking at your portfolio as a whole instead of its separate parts

[Herm M.]

anyone else with some feedback on this?

[Herm M.]

help.

[Paul Defngin]

@Herm M. most lenders who follow conventional (GSE’s) guidelines will go with a)

[Herm M.]

Originally posted by @Paul Defngin:

@Herm M. most lenders who follow conventional (GSE’s) guidelines will go with a)

Interesting. Since posting this, I've called around and heard several people say that it's B. Now I'm even more confused.

[Chris Mason]

Originally posted by @Herm M.:

Let's say a person makes 11k a month and his/her monthly credit obligations add up to 5k monthly (this includes three mortgages). This person is essentially tapped out as far as debit:income goes.

This person wants to buy a duplex rental for $550,000. With 25% down , the loan amount is $412,500. The PITI comes out to $2800. The monthly rental income is $5300. The lender will give credit for 75% of that, let's say $4000/month.

As far as qualifying for a conventional loan at 3.5% goes, which of the following is true?

a) The lender will say that the building is self-sustainable because the $4000 rent covers the $2800 payment. The lender will give you the loan.

b) The lender will say that you are signing up for a new monthly obligation at $2800 and so you need to meet 45% debt:income and so you need $5800/month in additional income in order to get this loan. They'll give you $4000 rental credit and require an additional $1800 of monthly income.

I have heard mixed things on this. If b is the case above, then that disqualifies this buyer.

 $5300 * 75% - $2800 = $1175.

No debt will be added to DTI.

$1175 will be added to income.

That is the calculation specific to the exact scenario presented. People think there is "the" way it's done. There is no "the" way, there are like 5 ways, depending on the exact scenario. Most loan originators don't really work with a lot of investors.

[Timothy Hero]

You might be better off going with a PML company, where they don't care about your DTI or income, but instead the focus is your credit and the cash flow of the property.

Where is the property located?

[Herm M.]

Originally posted by @Chris Mason:

Originally posted by @Herm M.:

Let's say a person makes 11k a month and his/her monthly credit obligations add up to 5k monthly (this includes three mortgages). This person is essentially tapped out as far as debit:income goes.

This person wants to buy a duplex rental for $550,000. With 25% down , the loan amount is $412,500. The PITI comes out to $2800. The monthly rental income is $5300. The lender will give credit for 75% of that, let's say $4000/month.

As far as qualifying for a conventional loan at 3.5% goes, which of the following is true?

a) The lender will say that the building is self-sustainable because the $4000 rent covers the $2800 payment. The lender will give you the loan.

b) The lender will say that you are signing up for a new monthly obligation at $2800 and so you need to meet 45% debt:income and so you need $5800/month in additional income in order to get this loan. They'll give you $4000 rental credit and require an additional $1800 of monthly income.

I have heard mixed things on this. If b is the case above, then that disqualifies this buyer.

 $5300 * 75% - $2800 = $1175.

No debt will be added to DTI.

$1175 will be added to income.

That is the calculation specific to the exact scenario presented. People think there is "the" way it's done. There is no "the" way, there are like 5 ways, depending on the exact scenario. Most loan originators don't really work with a lot of investors.

 This property is in Oakland. Help me with this loan. I'll send you a message.

[Herm M.]

Originally posted by @Timothy Hero:

You might be better off going with a PML company, where they don't care about your DTI or income, but instead the focus is your credit and the cash flow of the property.

Where is the property located?

Located in Oakland, CA. I need a rate of about 3.5% and so PML won't work.

[Timothy Hero]

Why do you "need" a rate of 3.5%? If it's meet cash flow goals, it sounds like the property doesn't cash flow well enough. It's common for people to say "if I can't get below 4 or 4.5%, the numbers don't work. But 3.5% on an investment property is very low.