cancel
Showing results for 
Search instead for 
Did you mean: 

DTI Calculation for Conventional Loan

TXPocohontas
Regular Contributor

DTI Calculation for Conventional Loan

So I have my home I purchased in Feb 2020 for $231k (current balance $223k), however, because of the housing boom it is currently worth approx $315k.  I want to rent it out for $2100/mth either with an option to buy after 2 years at market value or have it qualified for traveling medical personnel (Travelling nurses) at 6 month leases @$3000/mth (fully furnished with utilities).  I know interested people for each situation who would pass a criminal/credit/rental background check.

 

I am having a house built in another state to make my primary residence.  Since I won't have 2 years of rental for the current home as I still live in it, how will my DTI be calculated by Underwriting?

 

Do they calculate housing expenses based on the current or do they calculate based on the anticipated new housing expense (which would then raise my overall monthly housing expenses)?

 

I also found out from the employment verification that I will be getting a sizeable raise late January since they are relocating my job out of state.  I close on the new build sometime between May 2022 and September 2022 due to builder supply issues.

 

If I calculate based on my current home, my DTI Front end is 24.30%, Back end is 30.59%.

 

I will sell my current home if absolutely needed to qualify with Underwriting but I do not want to.  I could make a big profit if I hold off for 2 more years before selling the current home.  The little town is growing like crazy.  

 

Please advise.

 

Wishing ya'll a wonderful and blessed holiday season!

 

 

Starting Fico 8 Score Dec 2019: 469 TU 501 EQ 453 EX
Current Score: 791 TU 769 EQ 784 EX
Goal Score: 820 Across the board
First Premier CL $300 BAL $0, Lane Bryant CL $750 BAL $0, Credit One AMEX CL $600 BAL $0, NFCU Visa CL $9100 BAL $0, Capital One QuickSilver CL $2000 BAL $0,Ashleys Homestore CL $3500 BAL $0,
LATE PAYS/COLLECTIONS/BANKRUPTCIES/CHARGEOFFS/JUDGEMENTS 0
Message 1 of 10
9 REPLIES 9
dragontears
Senior Contributor

Re: DTI Calculation for Conventional Loan


@TXPocohontas wrote:

So I have my home I purchased in Feb 2020 for $231k (current balance $223k), however, because of the housing boom it is currently worth approx $315k.  I want to rent it out for $2100/mth either with an option to buy after 2 years at market value or have it qualified for traveling medical personnel (Travelling nurses) at 6 month leases @$3000/mth (fully furnished with utilities).  I know interested people for each situation who would pass a criminal/credit/rental background check.

 

I am having a house built in another state to make my primary residence.  Since I won't have 2 years of rental for the current home as I still live in it, how will my DTI be calculated by Underwriting?

 

Do they calculate housing expenses based on the current or do they calculate based on the anticipated new housing expense (which would then raise my overall monthly housing expenses)?

 

I also found out from the employment verification that I will be getting a sizeable raise late January since they are relocating my job out of state.  I close on the new build sometime between May 2022 and September 2022 due to builder supply issues.

 

If I calculate based on my current home, my DTI Front end is 24.30%, Back end is 30.59%.

 

I will sell my current home if absolutely needed to qualify with Underwriting but I do not want to.  I could make a big profit if I hold off for 2 more years before selling the current home.  The little town is growing like crazy.  

 

Please advise.

 

Wishing ya'll a wonderful and blessed holiday season!

 

 


What is your DTI (backend) with both mortgages? 

It is going to be a crap shoot if a lender will use future rents towards your DTI,  some require 2 years, some require that you have a tax return with rental income, some require a signed lease, etc.

Message 2 of 10
TXPocohontas
Regular Contributor

Re: DTI Calculation for Conventional Loan

@dragontears If they do not count the rental income my DTI front is 42.71% and back is 47.21%.

 

I won't have a signed lease until 30 days before closing. 

Starting Fico 8 Score Dec 2019: 469 TU 501 EQ 453 EX
Current Score: 791 TU 769 EQ 784 EX
Goal Score: 820 Across the board
First Premier CL $300 BAL $0, Lane Bryant CL $750 BAL $0, Credit One AMEX CL $600 BAL $0, NFCU Visa CL $9100 BAL $0, Capital One QuickSilver CL $2000 BAL $0,Ashleys Homestore CL $3500 BAL $0,
LATE PAYS/COLLECTIONS/BANKRUPTCIES/CHARGEOFFS/JUDGEMENTS 0
Message 3 of 10
Revelate
Moderator Emeritus

Re: DTI Calculation for Conventional Loan


@dragontears wrote:

@TXPocohontas wrote:

So I have my home I purchased in Feb 2020 for $231k (current balance $223k), however, because of the housing boom it is currently worth approx $315k.  I want to rent it out for $2100/mth either with an option to buy after 2 years at market value or have it qualified for traveling medical personnel (Travelling nurses) at 6 month leases @$3000/mth (fully furnished with utilities).  I know interested people for each situation who would pass a criminal/credit/rental background check.

 

I am having a house built in another state to make my primary residence.  Since I won't have 2 years of rental for the current home as I still live in it, how will my DTI be calculated by Underwriting?

 

Do they calculate housing expenses based on the current or do they calculate based on the anticipated new housing expense (which would then raise my overall monthly housing expenses)?

 

I also found out from the employment verification that I will be getting a sizeable raise late January since they are relocating my job out of state.  I close on the new build sometime between May 2022 and September 2022 due to builder supply issues.

 

If I calculate based on my current home, my DTI Front end is 24.30%, Back end is 30.59%.

 

I will sell my current home if absolutely needed to qualify with Underwriting but I do not want to.  I could make a big profit if I hold off for 2 more years before selling the current home.  The little town is growing like crazy.  

 

Please advise.

 

Wishing ya'll a wonderful and blessed holiday season!

 

 


What is your DTI (backend) with both mortgages? 

It is going to be a crap shoot if a lender will use future rents towards your DTI,  some require 2 years, some require that you have a tax return with rental income, some require a signed lease, etc.


I must have missed a memo: previously this was a pretty hard and fast rule of two years as the GSEs mandated that.

 

Did COVID change those underwriting guidelines or are you referring to portfolio lenders holding the mortgage themselves?




        
Message 4 of 10
VALoanMaster
Valued Contributor

Re: DTI Calculation for Conventional Loan


@TXPocohontas wrote:

So I have my home I purchased in Feb 2020 for $231k (current balance $223k), however, because of the housing boom it is currently worth approx $315k.  I want to rent it out for $2100/mth either with an option to buy after 2 years at market value or have it qualified for traveling medical personnel (Travelling nurses) at 6 month leases @$3000/mth (fully furnished with utilities).  I know interested people for each situation who would pass a criminal/credit/rental background check.

 

I am having a house built in another state to make my primary residence.  Since I won't have 2 years of rental for the current home as I still live in it, how will my DTI be calculated by Underwriting?

 

Do they calculate housing expenses based on the current or do they calculate based on the anticipated new housing expense (which would then raise my overall monthly housing expenses)?

 

I also found out from the employment verification that I will be getting a sizeable raise late January since they are relocating my job out of state.  I close on the new build sometime between May 2022 and September 2022 due to builder supply issues.

 

If I calculate based on my current home, my DTI Front end is 24.30%, Back end is 30.59%.

 

I will sell my current home if absolutely needed to qualify with Underwriting but I do not want to.  I could make a big profit if I hold off for 2 more years before selling the current home.  The little town is growing like crazy.  

 

Please advise.

 

Wishing ya'll a wonderful and blessed holiday season!

 

 


Since the rental income will be coming from the primary residence that you are departing, Fannie Mae allows lenders to use a lease agreement. 

Your DTI will be calculated counting both PITI payments plus all of the other debts reporting on your credit report while using 75% of the rental income to offset the PITI payment for the rental property.

VA Mortgage Expert. Mortgage Banker lending in All 50 States.
VA, FHA, USDA. Jumbo, Conventional.
CAIVRS Expert.
Message 5 of 10
TXPocohontas
Regular Contributor

Re: DTI Calculation for Conventional Loan

@VALoanMaster Thank you for the insight and information. 

 

Wishing you many blessings and a happy holiday season. 😀

Starting Fico 8 Score Dec 2019: 469 TU 501 EQ 453 EX
Current Score: 791 TU 769 EQ 784 EX
Goal Score: 820 Across the board
First Premier CL $300 BAL $0, Lane Bryant CL $750 BAL $0, Credit One AMEX CL $600 BAL $0, NFCU Visa CL $9100 BAL $0, Capital One QuickSilver CL $2000 BAL $0,Ashleys Homestore CL $3500 BAL $0,
LATE PAYS/COLLECTIONS/BANKRUPTCIES/CHARGEOFFS/JUDGEMENTS 0
Message 6 of 10
Revelate
Moderator Emeritus

Re: DTI Calculation for Conventional Loan


@VALoanMaster wrote:

@TXPocohontas wrote:

So I have my home I purchased in Feb 2020 for $231k (current balance $223k), however, because of the housing boom it is currently worth approx $315k.  I want to rent it out for $2100/mth either with an option to buy after 2 years at market value or have it qualified for traveling medical personnel (Travelling nurses) at 6 month leases @$3000/mth (fully furnished with utilities).  I know interested people for each situation who would pass a criminal/credit/rental background check.

 

I am having a house built in another state to make my primary residence.  Since I won't have 2 years of rental for the current home as I still live in it, how will my DTI be calculated by Underwriting?

 

Do they calculate housing expenses based on the current or do they calculate based on the anticipated new housing expense (which would then raise my overall monthly housing expenses)?

 

I also found out from the employment verification that I will be getting a sizeable raise late January since they are relocating my job out of state.  I close on the new build sometime between May 2022 and September 2022 due to builder supply issues.

 

If I calculate based on my current home, my DTI Front end is 24.30%, Back end is 30.59%.

 

I will sell my current home if absolutely needed to qualify with Underwriting but I do not want to.  I could make a big profit if I hold off for 2 more years before selling the current home.  The little town is growing like crazy.  

 

Please advise.

 

Wishing ya'll a wonderful and blessed holiday season!

 

 


Since the rental income will be coming from the primary residence that you are departing, Fannie Mae allows lenders to use a lease agreement. 

Your DTI will be calculated counting both PITI payments plus all of the other debts reporting on your credit report while using 75% of the rental income to offset the PITI payment for the rental property.


That's interesting... how long a gap is allowed on such things?  I shouldn't need it for a 43% backend underwrite personally but I did exactly this with my place in Texas but have a 9ish month gap between that and purchasing a new place.  Not enough to qualify under what I understood to be the old rule but maybe on the new one, huh.




        
Message 7 of 10
VALoanMaster
Valued Contributor

Re: DTI Calculation for Conventional Loan


@Revelate wrote:

@VALoanMaster wrote:

@TXPocohontas wrote:

So I have my home I purchased in Feb 2020 for $231k (current balance $223k), however, because of the housing boom it is currently worth approx $315k.  I want to rent it out for $2100/mth either with an option to buy after 2 years at market value or have it qualified for traveling medical personnel (Travelling nurses) at 6 month leases @$3000/mth (fully furnished with utilities).  I know interested people for each situation who would pass a criminal/credit/rental background check.

 

I am having a house built in another state to make my primary residence.  Since I won't have 2 years of rental for the current home as I still live in it, how will my DTI be calculated by Underwriting?

 

Do they calculate housing expenses based on the current or do they calculate based on the anticipated new housing expense (which would then raise my overall monthly housing expenses)?

 

I also found out from the employment verification that I will be getting a sizeable raise late January since they are relocating my job out of state.  I close on the new build sometime between May 2022 and September 2022 due to builder supply issues.

 

If I calculate based on my current home, my DTI Front end is 24.30%, Back end is 30.59%.

 

I will sell my current home if absolutely needed to qualify with Underwriting but I do not want to.  I could make a big profit if I hold off for 2 more years before selling the current home.  The little town is growing like crazy.  

 

Please advise.

 

Wishing ya'll a wonderful and blessed holiday season!

 

 


Since the rental income will be coming from the primary residence that you are departing, Fannie Mae allows lenders to use a lease agreement. 

Your DTI will be calculated counting both PITI payments plus all of the other debts reporting on your credit report while using 75% of the rental income to offset the PITI payment for the rental property.


That's interesting... how long a gap is allowed on such things?  I shouldn't need it for a 43% backend underwrite personally but I did exactly this with my place in Texas but have a 9ish month gap between that and purchasing a new place.  Not enough to qualify under what I understood to be the old rule but maybe on the new one, huh.


Here are the guidelines:

 

Reconciling Partial or No Rental History on Tax Returns

In order for the lender to determine qualifying rental income, the lender must determine whether or not the rental property was in service for the entire tax year or only a portion of the year. In some situations, the lender’s analysis may determine that using alternative rental income calculations or using lease agreements to calculate income are more appropriate methods for calculating the qualifying income from rental properties. This policy may be applied to refinances of a subject rental property or to other rental properties owned by the borrower.

If the borrower is able to document (per the table below) that the rental property was not in service the previous tax year, or was in service for only a portion of the previous tax year, the lender may determine qualifying rental income by using

  • Schedule E income and expenses, and annualizing the income (or loss) calculation; or

  • fully executed lease agreement(s) to determine the gross rental income to be used in the net rental income (or loss) calculation.

VA Mortgage Expert. Mortgage Banker lending in All 50 States.
VA, FHA, USDA. Jumbo, Conventional.
CAIVRS Expert.
Message 8 of 10
Revelate
Moderator Emeritus

Re: DTI Calculation for Conventional Loan


@VALoanMaster wrote:


Here are the guidelines:

 

Reconciling Partial or No Rental History on Tax Returns

In order for the lender to determine qualifying rental income, the lender must determine whether or not the rental property was in service for the entire tax year or only a portion of the year. In some situations, the lender’s analysis may determine that using alternative rental income calculations or using lease agreements to calculate income are more appropriate methods for calculating the qualifying income from rental properties. This policy may be applied to refinances of a subject rental property or to other rental properties owned by the borrower.

If the borrower is able to document (per the table below) that the rental property was not in service the previous tax year, or was in service for only a portion of the previous tax year, the lender may determine qualifying rental income by using

  • Schedule E income and expenses, and annualizing the income (or loss) calculation; or

  • fully executed lease agreement(s) to determine the gross rental income to be used in the net rental income (or loss) calculation.


Thank you sir!  

 

Interesting, I do qualify on the partial year service stanza; I'm basically breaking even when you include amortization on the rental of my Houston place when one factors in all the taxes / property management / etc... but even if we did the loss before amortization that cuts a 2.28K/mo DTI hit down to around 850/month which is a huge win on a mortgage app.  

 

I don't think I realistically need it anyway, I have around 3.1K/mo in DTI clearance even carrying the full Houston monty, and I can fit the new 280Kish mortgage in that easily unless rates go up substantially and even then I just start stacking more money on the table (for the downpayment to be clear haha) until the LO says stop.

 




        
Message 9 of 10
VALoanMaster
Valued Contributor

Re: DTI Calculation for Conventional Loan

Looks like you'll be fine either way.

VA Mortgage Expert. Mortgage Banker lending in All 50 States.
VA, FHA, USDA. Jumbo, Conventional.
CAIVRS Expert.
Message 10 of 10
Advertiser Disclosure: The offers that appear on this site are from third party advertisers from whom FICO receives compensation.