Debt to income exceeded?

Question

My debt to income exceed the bank's guidelines so I’m trying to find other ways to raise capital to acquire additional properties. I don't have any issues with my credit or anything, they were just basing this on my DTI. Home equity isn't an option since my primary residence is a condo (which banks refuse to deal with), and I couldn't use my duplex because it's no longer my primary residence. I'm trying to do this on my own and would prefer not to team up with family members etc.

Mehran K. · Answer

The FNMA guidelines say you need 2 years tax returns showing rental income for any rental income to be counted. The funny thing is that this is interpreted/implemented by different lenders in different ways. 
Example:
Lender 1: Your 2 years tax returns showing any rental income is enough to use your income from the duplex AND the property you are looking to purchase(They'll ask for signed leases if its occupied, and there is a fnma/fmac form for estimating market rent that has to be filled out if it isn't)
Lender 2: Will want 2 years tax return history for each property before they will use the income from that property

From what I've seen, the calculation they use is Gross Rent * .75 - PITI = Income to add to your DTI.
So if you have $1000 gross rent, and $500 PITI, this will add $250 to your gross income used for your DTI ratio.

I'm really surprised that lender won't use the rent from the new tenant that's been there 6 months, that's lame. As Jon Holdman said, I would call around different lenders and see how they interpret the rule. It could help to use a good broker, familiar with investments,  who knows the underwriting of different banks.

Jon Holdman · Answer

If you're buying profitable properties, they should help your DTI.  Or, at least not hurt it.  Are you new to landlording?  You need two years tax returns with rental income for it to be counted for most lenders.  After that, they will include the rental income which (hopefully) exceeds the expenses.

May be a matter of trying a different lender.  Start dialing in your area.  If you want to try to find a lender here, you'll need to post in the Marketplace.

Alternatively, try for owner financed deals - lease/options, land contracts, owner carried mortgages.

Bill Gulley · Answer

LOL, actually I have considered it on several topics but my problem is the technlogy, I'm no geek, I guess I need to hire it out, I'll have to ask Rich Wise how he did his.....and like Rich, any profits will be donated, probably to Habitat For Humanity.

But back on topic, seller financing is a great tool to acquire properties. It can really be a win-win transaction! :)

Mehran K. · Answer

Bill Gulley If you write a book. I"ll buy like 3 copies!

Account Closed · Answer

Christopher    Find sellers that will hold a mortgage for you.  If you have a few shekels to put down, this is not hard to do.  http://www.biggerpockets.com/blogs/3840/blog_posts/27179-seven-reasons-a-seller-should-hold-a-mortgage  
The secret to finding sellers that will hold a mortgage is to reconize them when you see them.  They are heirs.  They are older people that want to leave an annuity for their kids.  They are people that don't need the money fron the house.  They are people that their house is uninsureable.  They are CONDO OWNERS that the bank won't loan on their condo.  They are people that want to buy a gizmo that costs ten thousand dollars with the proceeds of the sale.  It has never occured to them that anything you can buy with cash, you can also buy it with income.  You can explain this to them.                          http://www.ronclimer.blogspot.com/2013/04/seven-reasons-why-i-love-owner-financing.html

Steve K · Answer

There are still plenty of people with equity, just keep hunting.  Are you exporting lists from the property appraisers site into excel?

Account Closed · Answer

Ron Climer, thanks for the links.

The biggest hurdle at this point is finding a property where the owner doesn't owe more than what's it worth. A lot of the properties I've looked up on property appraiser were purchased during the bubble.

Bill Gulley · Answer

LOL, the only good book I know of would be my book, but I haven't written one yet! Really, at this point, much of it is right here on BP! :)

Account Closed · Answer

Mehran Kamari, This was a few months ago so I'm not entirely sure if the lender didn't want to use the income, or if I simply never supplied that info based on my knowledge of a 2 yr rule. Also, before closing on the condo I prodded my broker for more info regarding acquiring additional properties, but he gave me the googly eyes and said it was too soon to talk about buying another property. I'm not trying to rush anything, but I am trying to line everything up in advance so that I'll be ready.

Bill Gulley: I would gladly study seller financing options but there are so many terms (subject to, assumed mort, etc) that I'm having a hard time finding thorough resources on the subject. Can you suggest any books or provide links to sites with in depth info?

Bill Gulley · Answer

You need to study seller financing options! :)

Debt to income exceeded?

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