Hi,

My wife and I have always purchased used cars. With multiple kids now including a another baby on the way, we are looking at buying a new vehicle to get something safe for our family. We are looking at getting an auto loan while interest rates are low (save cash for investing). We purchased our current cars with cash. We have excellent credit, are responsible with our money, etc. My question is in regards to how loan officers calculate rental property to qualify for a mortgage vs how someone in the bank/credit union branch calculates your DTI when applying for an Auto loan. This has been a problem for us in the past.

When we apply for a mortgage they will calculate rental property separately and then add the net number to either our income or debt depending on if its positive or negative. As an example, if someone makes $5,000/MO and has a personal, owner occupied house with a mortgage/Rent of $1,500 and nothing else than their DTI (debt to income ratio) is 30% ($1,500/$5,000). Now, if you add in a rental property, that rents for lets say $1,000/MO and has expenses/PITI of $600 a mortgage company will either due a full calculation to calculate the Net Income, or simply take 75% of rent, which is $750. So to make it simple, a mortgage loan officer will take $750-$600 = $150 of positive cash flow. They would add the $150 rental income to their $5,000/MO salary to get $5,150. $1,500/$5,150 is 29% DTI, so a cash flowing rental property caused their DTI to improve because the rental property is done as a separate calculation with the net income from that property being added to the persons income and nothing added to the debt column (assuming property cash flows). This is how it works in the "real world" trying to get loans for businesses, properties, etc.

However, the last time we applied for a car loan (after having been approved for mortgages that year) the assistant branch manager just took the rental income ($1,000/Mo as an example) and added it to the income side and put the debt payment ($600 PITI as an example) on the debt side. So this rental property looks like it is at a 60% DTI by itself. Add this to the above scenerio and the person would have $6,000 income and $2,100 Debt. $2,100/$6,000 is a 35% DTI, quite a difference from the 29% if calculated this way, and this is with adding in one rental property. We have multiple rental properties and calculating it this way wreaked havoc on our DTI....even though we had purchased and refinanced properties that same year with the same tax returns.

We felt a little red faced getting turned down for a small used auto loan.  We owned about a dozen cash flowing properties at the time (both had jobs, near perfect credit, no credit card debt, literally only mortgages).   We kept trying to tell the branch associate they were calculating it wrong, but they were insistent that is how the calculate it for Auto Loans.  

Has anyone else had this happen, or can you confirm if this is how it must be calculated for auto loans?  

Thanks!