House Hack #3 - Debt to Income Issue

[Chris Mylan]

Hi BP,

After two successful, cash flowing house hacks in the DC area, my DTI is pushing 40 percent. I will not be approved for a third loan without a little ingenuity. My goal is to put down less than 20% on a third, owner occupied house. Does anyone have any ideas or solutions to this problem?

Maybe a co-borrower that does not live in the house (i.e. can I use my parent's income if they agree to co-sign the loan). I've heard of people using HELOCs, private or hard money to put down the full 20-25%, but I would like to use those as last options. 

I could also sell one of the houses, but I would like to keep them both for long term buy and holds, if possible. 

Appreciate the feedback and any potential solutions.

Thanks,
Chris M

[Daniel Haberkost]

@Chris Mylan

Hey Chris, if you have a family member willing to co-sign, (assuming they have proper DTI ratio) then that should solve the issue.

I was in a similar situation when I left my W2 job and solved it that way.

-Dan

[Russell Brazil]

On your old properties, rents should offset the debt, and thus have little to no impact on your DTI.

[Chris Mylan]

@Russell Brazil The issue is the bank only counts 75 percent of the current rents (leaving roughly a $1,000 negative monthly margin compared with PITI) and then the new house is fairly expensive - somewhere in the $550-750k range in DC (as you know). And I obviously won't have the rents for the new purchase, so it greatly counts again me and throws the DTI out of whack.

@Daniel Haberkost Thank you, Daniel. Very encouraging to know.   

[Russell Brazil]

@Chris Mylan you could go FHA on the next one, allowing a much higher DTI. Not the best loan by any means, but the higher DTI can be useful in situations like this one.

[Frank Jiang]

If the lender is only counting a percentage of the rental income of the first two houses, this is an overlay or a qualification requirement specified by that specific lender.  It is entirely possible to find a lender that does not have that specific overlay and use them to fund instead.