No more DTI, lots of equity. What’s next?

Question

Hello All, my wife and I have 6 doors in Denver. We have a bunch of equity and have reached our DTI limit. Therefore a HELOC and cash out refi will not work. We would like to use the equity for a down payment and a mortgage. Our dream is to have a profit generating STR. Anyone have any ideas on how to tap into this equity?

Kevin Romines · Answer

I would want to look at the taxes to determine that your DTI is in fact at its limits. To be honest, loan officers that are not used to working with people with rentals don't always get it right in terms of the correct calculations, and other LO's are lazy, just saying. That said, if you are at the limit of your DTI, you can still tap the equity with a DSCR loan up the max. cash out limits which I believe are between 70-80% LTV. I would need to get my head in the guidelines to check and confirm the max. LTV, but this is what is sticking out to me on that.

The priority is always do a conventional loan when you can as the rates are the best there, followed by a Non-QM loan of some type, in this case a DSCR loan. Also a commercial loan works a lot like a DSCR loan when looking at debt ratio and also the borrowers experience. So there are options, you just need someone to walk through all the options with you after they properly calculate your income and debt via the tax returns.

I hope this helps?

Andrew Postell · Answer

@David Meier yeah, just to reinforce the above comments having a lender say "Your DTI is maxed out" means they don't understand what we do as investors. This might be one of three scenarios:

1. They don't know how to use your rental income to help you qualify (which means you need to go to a different lender)

2. They don't offer any loans that completely ignore your DTI (which means you need a different lender)

3. You deals/taxes aren't structured properly and you need some good advice on how to show your income (and while not lender related....a real estate friendly lender should be able to tell you this)

So try to search around for some better lenders. I wrote an entire post on how to find good lenders that you can find HERE.

Hope all of that makes sense.

Nick C. · Answer

Sounds like you need to be talking to a small, local bank about your plans. Your DTI shouldn't matter as much as your business plan, your previous successes, and your ability to execute.

Steven Goldman · Answer

You are clearly a DSCR candidate. You will have to adjust your numbers going forward to account for the higher interest rates on a non- QM product. You still have many options just not the conventional traditional banking path. Good luck!

Jared Rine · Answer

@David Meier..you sound like a candidate for DSCR/investor cash flow loans and/or tapping the equity in your current portfolio that way. No DTI used only cash flow of the properties. Assuming your credit is in line and ltv, all else should be a non-issue. Just my $0.02

Camile Case · Answer

A DSCR loan cash out refinance and a DSCR acquisition loan - cash out can provide up to 80% LTV and acquisition up to 85% LTV - Asset Based not income based.

Carlos Ptriawan · Answer

Here's how the lender works in relation to DTI:
1. They consider the income from rental by you having two years of rental schedule E (FM requirement ?)
2. They consider the 75% of "potential" rental income" from the appraisal
3. the private lender company that uthe ses DSCR method and ignore DTI completely

I suggest you check your DTI again with the bank that's using methology #2. In case bank type #2 can't approve then next option is lender type 3. Each bank also has its own complexity when considering DTI (such as if your home has HOA and wife not working/not in the loan but on the title, wife is still responsible for DTI calculation).

No more DTI, lots of equity. What’s next?

No more DTI, lots of equity. What’s next?

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