denied credit with good credit score

[Account Closed]

I got denied credit for the first time, applying for a heloc and then a car loan. Now before you go off- I'm probably not going to get a car and make payments. It's not financially wise. I have never done so in the past, but a part of me wants to trade in my CR-V for a Wrangler. I don't know if I'll do it, certainly not before buying my next house but I wanted to at least "practice being successful". 

So my credit score is around 720 and my sole official debt payment is 1020 of home mortgage. Then I have 730ish to an income share agreement company for a few more years based on my earnings. Up to 17 percent of my monthly earnings up to 30k in total or 24 payments in total. That's a binding agreement but it's kinda off the debt books I think. Maybe the found it. Whatever. Still, that's it, so about 1700/mo and my income on the books is 4200 + 400 cash flow from 3 townhomes. I also have personal month to month rental income at my house I'm not counting. 

But I have a good credit score and decent income. This was first time I was denied. They only offered 40k of heloc though I have a few hundred thou in equity and even the car loan denied me. That was a shocker. I don't need the money. I have cash in the bank-- too much just sitting in cash probably. I's because I'm not needy and stable that I'm shocked. I will be totally fine but it's because I will be fine that I'm confused about their decision. 

Was it just straight debt to income? I guess if they divide 1750/4300 it's 41 percent. I didn't realize that was that high. In a few months I should get hired on and get a big pay bump from being a contractor. Let's hope. Then in year and a half when the ISA is paid off things will skyrocket up. 

But i was wondering if they gross out my investment properties, in which it will skew everything to 50:50. Let's say you have a million in RE debt payments and 1.1M in revenue. It will be close to 50:50 and water down your personal income and obligations. But if you net them you just add .1M to your personal payments. I chose big numbers to illustrate the point. I have about 4000 in expenses and 4400 in revenue from investments. 

This is stuff I have to learn. I won't get the car. that would kill me credit wise right now. I could even pay cash. But it was a shock to get denied that hahaha. 

I have a lender I work with and he says he can get me my money. The times I was denied I didn't put much effort into it, into establishing a relationship. It was just a boilerplate application. 

[David M.]

@Account Closed

I guess maybe we should stop calling it "debt to income" as its more like "expenses to income" ratio.  Also, you wrote a bunch there and I'm not entirely following...

First, your cash flow on your rentals doesn't matter.  That's we talk about cash flow.  Your income from your from you rentals is recalc'ed at 75% of the rents (not 75% of the profit/loss).  They should also back out depreciation since that's a non-cash deduction.  So, depending on how your rentals perform, they may be helping or hurting your 'income' value.

Is your 4200 income gross or net?

Furthermore, the "debt" is really more so the PITI for the loan you are looking for. The "income" is really the amount of money you have to service the "debt." That's why there is a difference between your "credit score" and your "available credit."

In short, take your earnings and subtract your "fixed debts" (usually car payments, existing loans, credit card payments) and that is your available income to service the loan. Then, figure out the PITI for the loan that you are looking to get. now divide the two numbers

Or look at it another way, with a much simpler citizen. Somebody makes $40k a year, so lets say for the sake of example that $2k a month gross. I'm used to NJ so net would be more like $1k a month. Lets say this person has $100 a month of credit card payments. Now we are looking at $900 a month gross of income to service a new loan. So..... P&I on $100k loan nowadays is about $425 a month, and for the sake of this example lets just say taxes and insurance are a mythical $50 amonth. Thats $475 /mo. This person's "DTI" is $475/$900 or a whopping ~53%. To afford this loan, they would have to live on $425/mo... hmmm....

Does this help?