Denied Refinance Due to DTI Ratio - Options?

Question

Hello All,A little background first of all. I currently own 2 duplexes and 2 SFHs as rentals. Both duplexes and one SFH have mortgages on them. The other SFH I paid cash for, rehabbed, and have rented out right now. I am looking to do cash out refinance with a 75% LTV ratio. I had initially been working with NewRez to do a cash out refinance, and after taking all my information and going through the preliminaries they said I should be fine to do a 75% LTV ratio loan. An appraisal was ordered and paid for (by me) and the loan was sent to underwriting. Now I am being told that they can only do 45% LTV on it because my DTI ratio is too high. Aside from being annoyed that I paid $500 for an appraisal (still waiting on the results of the appraisal) and am now being told they can only do 45% LTV instead of 75% LTV, I have a few questions for those of you who know more about this than I do.1. Is it worthwhile applying with another conventional lender who uses fannie mae and freddie mac, or am I likely to run into the same issue with any other conventional lenders I would apply with?2. If a conventional loan isn't an option in order to get the desired 75% LTV ratio on the refinance, what would you recommend as my second best option? Local community banks, portfolio lenders, credit unions, etc?Thanks in advance for any suggestions! :)

Andrew Postell · Answer

@Tim Porsche this might be hard to answer specifically in an open forum without knowing everything else that is going on but speaking with another lender is certainly recommended. You might need a commercial/portfolio loan but it's hard to say here. Now when you speak with another lender you need to be armed with some questions to ask:Questions for Lenders When do you start using rental income to help me qualify? (the answer needs to be immediately) - none of this needs to be on tax returns or waiting any period of time. If it ain't right away, then immediately go somewhere else. When do you start using “After Repair Value” on my property? (also needs to be immediately) How long do you need me to be on title to refinance? (this is important if you do need a short term loan to purchase then refinance out - and the answer should be 1 day...very important that it is 1 day on title is all that is needed to refinance) What is my minimum down payment required? (if they only require 15% down on a single family home that is usually a good sign that you are working with a flexible lender) How many loans can I have with you? Do you sell your mortgages? What is your loan minimum? Can you explain to me what your reserve requirements are? The last few here may not apply to your specific situation but I want you to ask them anyway. An experience lender, who works with us investors, needs to be able to provide answers to these questions. Sorry that this happened. Lots of place say "sure, we have experience with real estate investors"....but they don't tell you if the experience is any good or not. Hope this helps in some way.

Andrew Postell · Answer

@Nick Shri those questions were mostly to answer Tim's question....so they may not apply to you at all if you are trying to do something different but just in case, here are the answers of why these are important:how many loans? Is it to identify the lender could be potentially go-to lender for future investment opportunities? - Yes, but to also identify if they have additional overlays. If they can only provide 2 loans (and some lenders will restrict you to two) then other things could be going that will restrict us as real estate investors.If the bank sells the mortgages - how does that impact me? - So if you like your lender and really enjoy working with them and they sell your loan to a jerk company (which absolutely happens) then I want to know that upfront. Usually lenders that don't sell their loans are more flexible with what we need as investors.Loan minimum? - If you find a great cashflowing property but the value on it is $100,000 and your lender has a loan minimum of $100,000...then you can't buy that property. No loan minimums mean that I can buy any property that I want.Reserve requirements? - Reserves are the funds you need after you close on a home. Money that you leave in "reserve" so that incase anything goes wrong you have money to cover the expense. You can't be completely broke after buying an investment property.Hope these make sense.

Tim Porsche · Answer

Thanks for the replies everyone! Especially @Andrew Postell. Those are awesome pre-qualification questions to ask a lender that I'll definitely be using in the future.Just to update, I put in an application with another lender (Better.com) and the whole process has been a breeze so far. I really stressed to them the importance of making sure my DTI will work BEFORE an appraisal is ordered and we go any further. After looking over everything, taking into account all sources of income, assets, debts, etc, they are confident the DTI won't be an issue. Also as a bonus, it looks like I'll be able to use the appraisal from the previous lender to qualify for the loan, saving me about $600 :). The rate is the same as the first lender (3.875%) with just .5 points and what I really like is that getting to closing usually only takes about 4 weeks they said because of how streamlined the process is. So it's been sent to underwriting now and we'll see what happens. I'm feeling pretty good about it from all my interactions with everyone so far though.

Michael Glist · Answer

So I would say to talk to at least 1 other lender. They may indeed be correct depending on how your financial situation has changed since the last time you got a loan such as getting another car payment or new debts. The only other possible thing I can see as a problem is if you do not have 2 years rental income history thus raising your DTI due to them only counting the debt against you and not allowing the use of rental income when qualifying. If you are not able to get approved for conventional financing you can look into a NON-QM lender that offers DSCR loans. They will look at the property and it's ability to make money to cover the mortgage, taxes and insurance as opposed to looking at your ability to cover the mortgage. Rates on this are typically 1-2% higher than that of a conventional loan.I hope this helps.

Jason Shackleton · Answer

@Tim Porsche You could get private money at 5%-6% with 75% LTV very likely.

John Warren · Answer

@Tim Porsche I would think it makes sense to speak with another lender at this point. I have seen this scenario in my own life where an underwriter counted all the debt of one of my four units against me, but didn't include the income... Since your properties are investments, they should be kicking a lot of income into the equation I would imagine. My lender @Joshua Jones might be able to help.

Nick Shri · Answer

Love the conversation on this thread. I had like to understand the reason behind asking the above mentioned questions. What will I learn specifically? how many loans? Is it to identify the lender could be potentially go-to lender for future investment opportunities?If the bank sells the mortgages - how does that impact me?Loan minimum?Reserve requirements?TIA.