Will utilizing seller financing show up on my future DTI?

Question

Came across a great deal and the seller is offering seller financing.  When I apply for my next mortgage, will this (seller financed) mortgage affect my debt to income?

Derek Dombeck · Answer

I would purchase the property in an entity for sure. In the future, when you fill out loan apps, you disclose that you own the entity and the lender may or may not ask for the financials of the entity.  I never lie, but its the entities business debt, not your personal debt, so I don't believe it should be included in your personal DTI.

Leo F. · Answer

LI extremely difficult. I have been investing in the area for over 25 years, and always secure my props off market. I am and still continue to explore Ohio markets for cash flow plays.  But always buy in my back yard when there is an opportunity.

Eric Veronica · Answer

The seller financing will count against your debt to income ratio for future purchases.  Even if you don't disclose the debt there are quite a few ways that the lender will know.

1. Whether you file your income taxes on a personal schedule E, a partnership 1065, or a 1120S Corp, the interest expense will show up as a deduction.  Any underwriter with half a brain is going to question how you are deducting interest from a property that you are stating is free and clear.

2. Lenders run a public record search that picks up a lot of things beyond what you will see on a credit report.  If the seller providing financing is correctly filing a mortgage on the property then that mortgage should be recorded with the county recorder/register of deeds.

3. If the underwriter sees a consistent monthly deduction coming out of your bank statements then they could ask for an explanation.

The good news is that if you are investing in Ohio then it is very likely that you will be cash flowing so hopefully the rent will more than cover the monthly debt.

Ryan Cleary · Answer

@Leo F.

That’s funny what are the odds?!  Well if you ever need any help or want me to run comps for you let me know!

Ryan Cleary · Answer

@Leo F.

Hey Leo!  Besides my current live in flip in Long Beach I have no other investments in NY.  I give you a lot of credit, I found this market too hard to get into!  I am in Florida and Ohio.  How have you found LI?

Ryan Cleary · Answer

@Derek Dombeck

Thanks for the advice Derek!

Ryan Cleary · Answer

Thanks Andrew!  It will be a cash-flowing duplex (not owner occupied)

Leo F. · Answer

@Ryan Cleary

by the way Tripodi team way to go down there!  I used to live in Long Beach about 27 years ago, beach block Loved IT!

Leo F. · Answer

I own several owner financed investment props in (L.I) and several traditionally financed, it Never factored in on my purchases. I see your from LI, is the prop your looking at on the island?

Will utilizing seller financing show up on my future DTI?

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