Comments on: What is Debt-To-Income Ratio (DTI Ratio)?

By: Mike

Mike — Sat, 18 Dec 2010 19:35:03 +0000

I’ve been told by experienced investor and mortgage broker that once you’ve been a landlord for 2 YEARS the lender will count the rent revenue, not just the debt payments. Need two years of tax returns. I think this falls under self-employment income in the guidelines.

By: Pinyo

Pinyo — Wed, 06 Oct 2010 02:36:47 +0000

I don’t have a rental property but do have some self-employment income and recently got a mortgage. I can tell you that they are a lot tougher now than they used to be. Like you, I wasn’t able to use current self-employment income to help my situation — the lender only used information from last year tax return and current full-time employment income.

If you show no profit from previous year, their logic is that you’re not going have any profit this year either.

You can always check out other mortgage lenders and see if it helps.

By: BUTCH

BUTCH — Wed, 29 Sep 2010 17:09:44 +0000

I applied for a home equity loan at a local credit union and was denied based on a DTI of 50%. I own a rental property which i make payments on of $1000.00 per month (owe 90K), but take in $2000.00 a month in rental income. I also have a mortgage payment on my home. These two mentioned is all the debt i owe. The lender stated the debt on the rental property was the reason my DTI was to high. I asked why the income, 24K, per year was not used in the calculation, but only the debt. I was told because i didn’t show a profit on the rental unit. For the life of me i can not understand this logic. The rental income pays for the debt no problems.

Can you help me understand why they use only the debt and not the rental revenue in their calculation? A mortgage broker i know told me the rental income should be used in my favor and this lender just doesn’t want to give up the cash!

By: Surrey Will

Surrey Will — Mon, 16 Aug 2010 18:16:17 +0000

The DTI, another one of those ‘metrics’ that has as its sole point to make people sound clever. It is of little value is applied without a good grasp of why it could be important to the party involved.

Life your life for yourself, and work out a good plan for YOU.

By: Daniel North

Daniel North — Tue, 15 Jun 2010 13:30:42 +0000

This post is really very appreciable. Your post is very advantageous for me and very good.

I hate to say it, but you win some and you lose some. I am not saying that you’re wrong to write off as much as possible to reduce your taxes. But when you write off a lot to lower your income, this is one of the consequences. It seems like that’s your best bet since prepayment won’t help you when the teaser rate expires.

By: Pinyo

Pinyo — Wed, 20 May 2009 14:41:50 +0000

@Pamela – Thank you. Have you consider other lenders? Do you know of any bank that works specifically with self-employed and freelancer?

Have you checked out this site? http://www.freelancersunion.org/

By: Pamela Hanes

Pamela Hanes — Wed, 20 May 2009 14:28:22 +0000

There is a slight chance we will have the funds needed but my husband really doesn’t want to go that route. I, on the other hand,think that 4.75% is a great rate and don’t want to risk losing that offer. When we add up closing costs and the pay down amount it is closer to $30,000. We even adjusted our write offs this year and are paying twice as much per quarter as we were last year but it probably won’t make a difference. Until we know for sure we can access the extra funds needed, I may shop around a bit more. Thank You for your input. This site was very helpful.

By: Pinyo

Pinyo — Wed, 20 May 2009 14:17:22 +0000

@Pamela – I hate to say it, but you win some and you lose some. I am not saying that you’re wrong to write off as much as possible to reduce your taxes. I would do the same in your situation. But when you write off a lot to lower your income, this is one of the consequences.

It sounds like you’re in ARM now and want to refinance to a fixed rate at 4.75%. Could you come up with the $20,000? It seems like that’s your best bet since prepayment won’t help you when the teaser rate expires.

By: Pamela Hanes

Pamela Hanes — Mon, 18 May 2009 17:41:39 +0000

I am completely frustrated! Wanting to take advantage of the low rates we applied for a fixed mortgage. (In an ARM) We have great credit, little to no debt, still have quite a bit of equity in our home and two incomes. However, we are both self -employed and have a great CPA who writes off as much as possible for taxes. So when it comes to our adjusted income our DTI shows us at 52%. Why can’t they consider that self-employed people write off as much as possible to avoid paying too much in taxes! It is obvious that we can pay the mortgage, in fact at the proposed rate of 4.75% we would only be paying $120 more than we pay now which we have been paying on time for 4 years! This particular lender wants us to “pay down” our existing loan by at least $20,000 so our DTI will be 50%. Again, so frustrating! Oh and for some reason we don’t qualify for the Govt.’s Fannie Mae project!

By: Jonathan

Jonathan — Sat, 05 Apr 2008 13:52:43 +0000

Pinyo, you’ve just summarised in a nutshell what a financial adviser this week tried to explain to me in 40 minutes! Thanks for the post