Originally posted by @Gordon Cuffe:
@Ross GleasonI was referring to conventional loans. Your calculations are incorrect when referring to underwriting a non owner loan. If lenders used your formula ,we would never get non owner financing. Here is a example. If a person has a gross income of 6k per month and his primary residence payment is 1800 per month. That is 30% housing dti. lets say he has a car payment and credit card payment at $400.0 per month then his total dti is 36%. That person wants to buy a rental house at 150k with a total piti payment of $900.0 per month and the house rents for $1200.0 per month. The lender will use 75% of the rental income as income towards the payment. 75% of 1200 is 900. The 900 per month offsets the additional 900 per month liability so he easily qualifies. If that person was purchasing a house with a 1200 per month payment that rents for 1200 per month then he would get hit with 300 per month in debts on top of the 2200 per month. His debt to income ratio would be 41%. A lender would probably approve that loan, but if he wanted to purchase a house with those same numbers again, they would probably decline it because his dti would go up to 46%. I've been working for a mortgage broker for a long time and that is how it always how it has been. I just cant believe that a person can get a FHA 30 yr fixed rate at 2.75% right now because of the drop in interest rates.
Still am pretty sure debt to income gets hurt from this example. Say my current monthly debt is 2k and my current monthly income is 5k, DTI=40%. Purchase the property from your example and now monthly debt increases to 2.9k and monthly income increases to 5.9k, new DTI=49%
I believe to do this strategy numerous times you would a.) need to get smoking deals or b.)have a high monthly income
