Rental Income not Included for DTI?

[Zach Taylor]

I closed on a tri-plex deal using a small local credit union for financing. Conventional Fannie/Freddie lender. I had some back and forth with them regarding DTI and how they calculate it. They would not include rental income from some of my properties for reasons such as seasoning time, and even because some of my units are month-to-month leases. They also would not include any income from the subject property (has tenants) unless I could furnish 1-year leases in my name before close. So basically they calculated my DTI with all of the debts from my assets and only a small portion of the income.

Just want to see if this experience is similar to others' out there. Definitely the most teeth-pulling underwriting I've experienced yet. I'll soon be going with portfolio/DSCR lenders, but wanted to see if others are having similar troubles with conventional lenders. Thanks.

[Andrew Postell]

@Zach Taylor I need to provide some clarity here if you don't mind:

They would not include rental income from some of my properties for reasons such as seasoning time, and even because some of my units are month-to-month leases. - There is some nuance here that might be important.  Fannie Mae has different requirements for this type of income than Freddie Mac.  It's important that your lender understands this difference. If any of your "month-to-month" income is not reported on your tax returns than neither agency can help you.  But if you do have it reported on your taxes (for 1 year only) then ONE agency can help you and the other cannot.

They also would not include any income from the subject property (has tenants) unless I could furnish 1-year leases in my name before close. - This is absolutely, 100% an overlay and this lender should not be used in the future.  I mean, you can use whoever you want to use really...but the rest of us should avoid this type of a lending rule at all costs.  This will ABSOLUTELY restrict me in many ways and if they have this overlay - it means they have others too.  Having a lease in your name before closing is NOT a requirement from Fannie Mae nor Freddie Mac.

Now, I'm a little surprised they even brought this up.  I mean, there are plenty of people who don't use rental income and still qualify...and it sounds like you closed?  So if it wasn't needed....why even make it a big deal?  To me, it sounds like they created a bunch of drama for no reason but maybe I'm misreading your post some.  If you don't need rental income to qualify, that should be told or explained to you before you even submit your application.  I did write an entire post on how to find good real estate investor friendly lenders that you can read HERE. I don't mean to come down on that lender so hard - but be really careful out there.  You did the right thing about posting here. Lean on other real estate investors in your area about who are good lenders to use. It might save your deal.