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Updated almost 7 years ago on . Most recent reply
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Hard money loan shows up in your dti
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Originally posted by @Nicholas Weckstein:
if thats the case then how could one expect to refinance out of a hard money loan?
Debts being paid off with cash out refinance proceeds are not included in your DTI. When you refinance, you typically pay off the existing mortgage and replace it with a new one.
Example math assuming a fake scenario where someone's only debt is the one property in a HML.
HML payment on Property A: $5000
Income $8000
Current DTI: $5k/$8k = 62.5%
Payment after refinance on Property A: $3000
DTI calculated for that refinance: 37.5%
Where you can get jammed up is if you want to purchase or refinance Property B before Property A is out of hard money. Flippers who have 3 flips in the works all in hard money, and want to buy one using conventional financing are typically SOL, unfortunately. But if your plate only has 1 thing at a time on it, it's a non issue.
Good luck!