Profile picture for theteehees

Why are my rentals increasing my debt to income ratio? I need to buy a primary home

My credit score is above 700, my W2 income is 90K+, I own 5 properties (one free and clear), all of the properties are on my 1040's and show a profit every year. I'm trying to pull cash out of the property that is paid off and use the proceeds to pay down some credit card debt and purchase a new (owner occupied) home. The lender I have been dealing with is telling me that my debt to income ratio is 47% and I feel like she is calclating something incorrectly. Since my rentals all show a profit, how could the mortgage payments on them affect my ratio as if they were not profitable. I'm very confused....I've owned real estate for nearly 30 years and never had a late payment, foreclosure, reposession, nothing derogatory! Are the banks really that scared?
  • January 04 2014 - Lake Suzy
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Answers (8)

Profile picture for frankc45
If your property you wan to buy is in CA I can help you. We don't need the tax returns and the rates is still very competitive.
  • January 21 2014
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There are a few different ways that lenders look at investment properties but a specific worksheet came out in the past year or so and it was made qualifying more difficult.  I have 9 rental myself and 50% of my clients have rentals so I'm very knowledgeable on this topic.  Call or email if you would like me to review.  Would need tax return, current mortgage statement, tax bill, insurance dec page and any association fees for all properties.
  • January 19 2014
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Those who own multiple rental properties and self employed individuals all have the same issue. Your tax returns will be the key to figuring out your DTI. There is a semi-complicated mathmatical equation of adding and subtracting certain numbers within your returns. For example, depreciation and or depletion can be added back into your income. What mainly happens though is you write off the majority of what you make with expenses for upkeep, insurance etc and therefore your thought of positive income may be more of a "wash" or you might show a loss. More than likely you can determine you income by looking at adjusted gross income and adding back depreciation. I would have to see the returns to be accurate.
  • January 19 2014
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Not everyone is capable of reading tax returns, unfortunately.  Tax returns with multiple rental properties, depreciation, etc. can easily be misread.  I would be happy to take a look for you today. [Email removed by Zillow moderator. Please see our Good Neighbor Policy for guidelines.]

Have a great day!
  • January 13 2014
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Profile picture for PaulMcCausland
The answer would be in the tax returns, and how aggressive your tax preparer is. I'd be happy to review them for you as there may be something that can be added back to your income.
I'm here to help,
Paul
  • January 06 2014
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Profile picture for gator70
Rental(s) will increase your debt to income ratios. I fight this myself.

Many lenders and GSAs view rentals as a liability and discount or eliminate the income side of the equation. In this view your DTI ratio gets much worse.

A few solutions:

1) 2 years schedule e
2) Use private lenders
3) Increase the down payment
4) Find lenders that will use one year lease agreements as income producing validation @ 75% of rental income is standard.

In the best case; you will suffer with $1 dollar of rental income is lessened by 25%, and multiplied by 43% (Dodd Frank)
  • January 05 2014
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Profile picture for JessicaAggson
You definitely need to get a few other opinions. Sounds like you are in a great position to buy. I would contact a few other local lenders to see what their opinions/advice would be!
  • January 04 2014
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Yes they are scared however based off the above scenario you should be fine. The main thing is your income after the deductions. 
  • January 04 2014
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