High DTI, Investment Property Mortgage?

Question

Hello,

I currently have 1 property (Duplex) I live in 1 apartment and rent the 2nd one for over 5 years now. I'm trying to purchase another property (Single Family) to rent out. I have 30% to put as a down payment, but my problem is my DTI is too high (53%) that's with calculating my current and future rental income (75% of it). The property I'm trying to acquire will have a positive cash flow. It is located in NJ.

Anyone have ideas of how I can get qualified for a loan? I'm looking to buy and hold, not flip.

Stephanie Medellin · Answer

@Mina G.  The depreciation should be added back, so that shouldn't affect the amount of rental income used to qualify.  Depreciation is an "imaginary" expense, so it's not counted against you.

Stephanie Medellin · Answer

Hi @Mina G.

How are you calculating your DTI?  If your DTI is ok based on your primary residence and monthly expenses, and the new property cash flows with 75% of the market rent, it shouldn't increase your DTI.

For the property you are trying to acquire, the formula is (market rental income * 75%) - Principal/Interest/Taxes/Insurance = Net Rental Income or Loss.  If the number is positive, it gets added to your income.  If negative, it gets added to monthly liabilities.

Michael Noto · Answer

@Mina G. Did you end up finding a lender? If the property has a minimum DSCR of 1.2 I work with a lender that will finance a single family rental at 75% LTV. They lend in NJ.

PM me if you would like details on their program.

Brent Coombs · Answer

I wasn't suggesting that the loan should nearly be paid off, but rather, RENT (increases?) from the other side should come close to covering all its mortgage/expenses - if it was a good investment.

Similarly for the SFR* you want to buy. If 75% of its appraised rent covers ALL its mortgage and expenses, AND allows for positive cash flow too, I would think you should be able to find a Lender.

* Especially if it will also appraise at around 143+% of what it costs you. BRRRR rules, OK?...

Mina G. · Answer

I'm not trying to get FHA. That would be illegal since I won't live there.

David Moore · Answer

@Mina G.

I think one challenge you have is you are trying to only go FHA.  There are other options.  Small banks are out there.  Realtors who are also investors are invaluable in having banking connections.  I've gotten my best lenders from them.  If the deal you are pursing is good enough, you might just get a commercial loan, but the interest will be higher.  If the return is good enough, a little extra interest won't be so bad.

Mina G. · Answer

@Brent coombs

My w2 income has changed..

How would a 30 years mortgage be close or paid off after 5 years?

My rate is 3.317 and pmi is coming off in 2 years.

Let me know if you have any suggestions. Thanks!

Brent Coombs · Answer

@Mina G., looks to me that either you have other debts not mentioned to us, or, your duplex wasn't a very good investment to begin with? Surely after 5 years, the other half should be close to completely paying for your FHA loan? Would you be better off refinancing into a conventional loan, to eliminate mortgage insurance and lock in a lower interest rate? Also, perhaps, MOVE into the SFR you want, using a fresh FHA-approved loan, and rent out both sides of your duplex? My 2c...

Mina G. · Answer

Stephanie,

My DTI is high to begin with (My current mortgage is by FHA). Based on the calculation I did with multiple banks, I'm at 52% DTI, that's with the new property. And thats without looking at my tax return. (I depreciate my property on my return) So it'll be even higher since I can't even use the full 75% of my current rental.

Thanks for your response!

High DTI, Investment Property Mortgage?

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