{"id":536,"date":"2020-03-13T01:02:05","date_gmt":"2020-03-13T01:02:05","guid":{"rendered":"http:\/\/www.eastbaysmortgagebroker.dreamhosters.com\/?p=536"},"modified":"2020-10-07T21:51:51","modified_gmt":"2020-10-07T21:51:51","slug":"investor-dti-math-primer","status":"publish","type":"post","link":"https:\/\/www.eastbaysmortgagebroker.com\/investor-dti-math-primer\/","title":{"rendered":"Investor Debt-to-Income (DTI) Math Primer"},"content":{"rendered":"
The infamous \u201cdebt to income\u201d ratio math is more generous when buying\/refinancing non-owner-occupied real estate than owner occupied. If we assume a property with gross rents at $3500\/mo and a PITI of $2000, the pure investment property math would have us multiple $3500 by 75% and subtract the $2000. The $625\/mo in positive cashflow left over is added to income, and there is no liability. DTI would improve.<\/p>\n
The math for owner occupied real estate would have us add $3500*75% to income and add $2000 to the monthly liabilities. DTI would typically get worse. This slight math difference is why folks that have the capital for the larger investment property down payments can support five or ten mortgages, whereas those struggling to amass 5% or 10% down (owner occupant down payments) might have trouble qualifying for two or three mortgages.<\/p>\n
Interestingly, if you\u2019ve read Robert Kiyosaki\u2019s book \u201cRich Dad Poor Dad,\u201d this approach is what he describes as well. Fannie Mae math is exactly aligned with the Kiyosaki approach to assets and liabilities \u2013 rental properties are an asset; a primary residence is a \u201cliability.\u201d (No commentary on some of the more implausible anecdotes contained in the book).<\/p>\n
The difference in how the arithmetic is done is so significant that we have clients with little or no \u201cday-job\u201d income that can obtain investment property financing, but not primary residence financing.<\/p>\n
Most lenders have \u201coverlays,\u201d which are lender-imposed restrictions above and beyond basic Fannie Mae and Freddie Mac requirements. We work with some of the best-in-class and best-in-rate lenders that have no or minimal overlays.<\/p>\n
Once the first property is owned, for those that have access to the capital (including funds borrowed from a colleague or family member), we have various methods to put that capital to work paired with Fannie Mae financing on investment properties. For those that have access to the capital, assuming a local investor-friendly lender, DTI is typically (but not always) a non-issue.<\/p>\n