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You're probably calculating your dti wrong. Do your rentals show up on your last 2 returns? Are your rentals net positive, they sound like they are. Are you trying to get a 15 year conforming on an owner occupied home or another rental ? Is the self employment income mentioned your net. A lender really needs to see your returns. If you just use your self employment income and ignore the rental, what is your dti with the new place?
If they show up on your last two years, your schedule E shows expense , add back deprecation subtract the mortgage payment as the monthly debt. Take this new net and add or subtract it from your income. Don't use the rental debt in the dti calc , it is an adjustment to income , it modifies the denominator not numerator. Forget the 25 % thing if they show up on your last two returns . Make sense?
That would be great! But I am being told by loan officers that the mortgage payments on all of my properties are included in the DTI, sort of like a global cash flow.
My business income is easily enough to absorb any slight difference between the rental income less mortgage payments, and I am still clearing over $100,000 and only want to borrow about $260,000 for my new home.
That would be great! But I am being told by loan officers that the mortgage payments on all of my properties are included in the DTI, sort of like a global cash flow.
My business income is easily enough to absorb any slight difference between the rental income less mortgage payments, and I am still clearing over $100,000 and only want to borrow about $260,000 for my new home.
Is it standard practice as you describe?
how much % equity do you have in each property. I can't say what is standard practice I don't know where you are, actually I made an assumption of the location of your country being the US. What is your location? could you pay off any of the rental mortgages with $60k in cash?
Good news, I found this from the Fannimae guidelines:
Calculating Monthly Qualifying Rental Income (or Loss)
Federal Income Tax Returns / Schedule E. When Schedule E is used to calculate qualifying rental income, the lender must add back any listed depreciation, interest, taxes, or insurance expenses to the borrower’s cash flow.
If the property was in service:
for the entire tax year, the rental income must be averaged over 12 months; or
for less than the full year, the rental income must be averaged over the number of months that the borrower used the property as a rental unit.
Lease Agreements. When current lease agreements are used, the lender must calculate the rental income by multiplying the gross rent(s) by 75%. The remaining 25% of the gross rent will be absorbed by vacancy losses and ongoing maintenance expenses.
See Treatment of the Income (or Loss) below for further instructions.
Treatment of the Income (or Loss)
The amount of monthly qualifying rental income (or loss) that is considered as part of the borrower's total monthly income (or loss) — and its treatment in the calculation of the borrower's total debt-to-income ratio — varies depending on whether the borrower occupies the rental property as his or her principal residence.
If the rental income relates to the borrower’s principal residence:
The monthly qualifying rental income (as defined above) must be added to the borrower’s total monthly income. (The income is not netted against the PITIA of the property.)
The full amount of the mortgage payment (PITIA) must be included in the borrower’s total monthly obligations when calculating the debt-to-income ratio.
If the rental income (or loss) relates to a property other than the borrower's principal residence:
If the monthly qualifying rental income (as defined above) minus the full PITIA is positive, it must be added to the borrower’s total monthly income.
If the monthly qualifying rental income minus PITIA is negative, the monthly net rental loss must be added to the borrower’s total monthly obligations.
The full PITIA for the rental property is factored into the amount of the net rental income (or loss); therefore, it should not be counted as a monthly obligation.
The full monthly payment for the borrower's principal residence (full PITIA or monthly rent) must be counted as a monthly obligation.
Note: For DU loan case files, the term “subject net cash flow” applies to net rental income from the security property, and the term “net rental income” applies to rental income from properties other than the security property.
According to this, not only is the depreciation added back but also the interest, taxes, and insurance.
Last edited by Rick78654; 12-16-2013 at 08:49 AM..
According to this, not only is the depreciation added back but also the interest, taxes, and insurance.
Then subtract your mortgage payment. The principal payment doesn't show up on your Schedule E but is treated as an expense. The depreciation is a paper loss which is why it get added back in.
The thing that gets me is you said that multiple LO have told you the same thing. I'd be curious what their response would be if you presented them with this information. There may be something that you are missing.
You are now in the 5 financed property category since you aren't going to pay of any of the other properties.
I certainly don't want to have to establish what my rental properties are worth to get a loan!
Their money, their rules. You pretty much have to do anything they ask if you want their money. Its easy enough for them to tell you "no".
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