cancel
Showing results for 
Search instead for 
Did you mean: 

Rental Income, DTI, FHA, and More.

tag
HouseBuyerGuy
Established Member

Rental Income, DTI, FHA, and More.

I attempted to start the mortgage process earlier this year, but opted to wait until Jan 2014 due to the restrictions and heavy reliance on tax returns now vs verifiable income.

 

I've read a lot of boards and "think" I am on the right track with my line of thinking/figuring it out.

 

Here is my scenario.

 

My annual income is roughly 77K. This includes my job salary, commission (counting 2 yr tax return average), and a self-employment income (also will show 2 yrs on tax returns). I also included $5K for mileage reimbursement (Axctual reimbursement was $15K, but from what I understand .23/mile can be added back as income. This would actually be 7500 but I like to use conservative estimates).

 

Additionally, I have a rental house. This was the second sticking point back in January that set my DTI back since they would not offset. I will now have 2 years of tax returns with my rental income. My mortgage payment is $1,000 and the rent is $850/month. (Due to a move, I low-balled the rent to ensure a quick rent. It worked and I got a 3 year lease agreement in return).

 

My debts:

Previously mentioned Mortgage: $1,000

Work Car: $291

Student Loan $300 OR $0 (I have 4 years of forbearance available. I will use 1 year at time of purchase so it doesn;t count as part of DTI. A stupid rule that says if I am not paying for a year, that it isn;t a debt? Really, people. Whatever, their rules. I will only do this if I need to.)

 

I already have the area I want to live picked out. The house will probably be 230-250K, and I will estimate a Mortgage+HOA of $1,650. My scores are in the 720-740 range. My goal is to put 5% down.

 

So, finally, the questions....

 

What I believe my scenario to be: Since I have 2 years of rental income on tax returns, the rent portion is used to offset my mortgage balance as opposed to the full mortgage being counted as debt and the full rent counted as income. I have a net loss of $150/month so this is added to my DTI ratio. DTI Ratio would now have just $150 for mortgage and $291 for car loan. We will assume I don't forbear my student loand and go with $741. My income w/o rental (used to offset) comes in at $6,400/month. Using the 43% DTI calculation my liabilities including new mortgage would need to be under $2,700. So, in my thinking my DTI ratios will be at $1,990 (no student loan) or $2,290 with them, so at max a 35% back-end ratio.

 

OR

I am figuring it wrong and the mortgage/rent is not an offset but mortgage is added to DTI and rent is added to income. So, my Income gets bumped to 87K ($7,250/mo and a $3,118 allotment for max DTI at 43%). My debts get bumped to $1,591 current, and $3,241 with New mortgage. In this scenario, I can still put my student loans in forbearance for a year to bring the DTI to about 40%, which I would prefer not to do.

 

Either way, I should be okay.

 

But which one is correct? (I'm 80% sure the first scenario is correct, which is favorable).

 

I am trying to avoid any problems when I go back for round two and fill any gaps in logic. I even skimped on my deductions so as to not reduce my income on my tax returns.


Starting Score: 668
Current Score: 726
Goal Score: 760



Message 1 of 3
2 REPLIES 2
StartingOver10
Moderator Emerita

Re: Rental Income, DTI, FHA, and More.

How rental income is calculated is a little different for u/w purposes. The underwriter will use 75% of the gross RENTAL receipts, not 100%. The other 25% is considered "vacancy and collection" - even if the property is not vacant and you get paid monthly the lender still inputs a vacany and collection percentage of 25%.  So, in your case, once that is figured in you will have a net liability added to your debts.

 

The back end calculation would include your actual debt payments owed plus the new house payment  plus this liability for your rental. Your income from the rental will count, just not all of it.

Message 2 of 3
Walt_K
Senior Contributor

Re: Rental Income, DTI, FHA, and More.


@HouseBuyerGuy wrote:

I attempted to start the mortgage process earlier this year, but opted to wait until Jan 2014 due to the restrictions and heavy reliance on tax returns now vs verifiable income.

 

I've read a lot of boards and "think" I am on the right track with my line of thinking/figuring it out.

 

Here is my scenario.

 

My annual income is roughly 77K. This includes my job salary, commission (counting 2 yr tax return average), and a self-employment income (also will show 2 yrs on tax returns). I also included $5K for mileage reimbursement (Axctual reimbursement was $15K, but from what I understand .23/mile can be added back as income. This would actually be 7500 but I like to use conservative estimates).

 

 


Are you sure you can count mileage reimbursement as income?  I didn't think it was income as they were paying you back for expenses incurred.


Starting Score: ~500 (12/01/2008)
Current Score: EQ 681 (04/05/13); TU 98 728 (01/06/12), TU 08? 760 (provided by Barclay 1/2/14), TU 04 728 (lender pull 01/12/12); EX 742 (lender pull 01/12/12)
Goal Score: 720


Take the FICO Fitness Challenge
Message 3 of 3
Advertiser Disclosure: The offers that appear on this site are from third party advertisers from whom FICO receives compensation.