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Real Estate Investing => Financing, Hard Money Lenders, Private Money => Topic started by: LandmarxProps on October 30, 2007, 11:22:59 am

Title: Do lenders impose a max on # of rental properties?
Post by: LandmarxProps on October 30, 2007, 11:22:59 am
I am wondering how investors get loans once they accumulate a number of rental houses or investments. I have been told some banks or at 4 now. I have heard 10 in the past. What if you want to own more than that?

I have a total of 4 now.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: christopher w on October 30, 2007, 11:32:21 am
10 is the max allowed with conventional financing. Nine investment properties and your primary residence. Used to be if you wanted more than 10 you could find Alt-A lenders that would allow more than 10, but most of those people are gone now. There are a few left, but there rates are astronomical.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: LandmarxProps on October 30, 2007, 12:45:21 pm
Can you use commercial financing on a rental property? Single family?
Title: Re: Do lenders impose a max on # of rental properties?
Post by: christopher w on October 30, 2007, 12:51:33 pm
Yes, but the rates are not as attractive and you will not be able to find a 30 year fixed rate loan. You will be able to find a 30 year amortization but it will have a balloon after typically 3,5,7, or 10 years. And most commercial loans will have some sort of pre-pay. I am running into the same problem myself. I have several investors that have more than 10 properties and we are having trouble finding lenders that will take their loans. There are some out there that will, but the rates are in the double digits killing the cash flow. What we are exploring now is moving some properties into blanket loans in the name of their LLC thereby clearing them from their personal credit.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: Investment Loans on October 30, 2007, 09:31:53 pm
Agree with Chris.  He just about summed it up.

# of lenders that once allowed more than 10 properties has been reduced quit considerably.  Still a few conventional lenders with decent rates but ltvs will need to be 70-75%.

Investors will need to explore using commercial loans either made to individual properties or blanket together.  Lender will usually want minimum of 5 properties in the blanket loan.

Commercial rates higher, terms shorter, and closing cost much lower.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: 71tr on October 31, 2007, 07:36:16 am
Is the 10 loan limit driven by the ability to sell the loans in the secondary market?  Bank regulations limit 'loans to one borrower' to a certain percentage of capital but I've never seen a bank with a stated number of loan limitation.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: christopher w on October 31, 2007, 09:18:43 am
71,

Most of the time it will be in the underwriting guidelines that the customer never sees, but it also shows up on the Automated Underwriting findings as well. It is a Fannie/Freddie guideline. You can go to efanniemae.com and read up on it if you like.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: kkiefer216 on October 31, 2007, 10:51:20 am
I have a similar situation.  I currently own five multi-family rental properties.  I had an offer accepted on my sixth property in late August, right in the midst of the melt-down, and I found myself going from lender to lender looking for one that would give me a 90%LTV for a legal three family.  I had a few options at 90%, although the interest rate was ridiculous.  I am now looking for alternative methods of obtaining financing for the purchase of additional rental properties, and was looking for some advice.  Most hard money loans are looking for properties that need substantioal improvements to them, where I currently am looking for properties in pretty good shape, that are currently occupied.  Also, when I would try to refinance the hard money loan, I would probably run itno the same issues with Debt to Income ratios and the such that banks require for financing an investment property.  I have found a great product that allows individuals to put their 401K, Roth or traditional IRA's into an account which then can be used as a self-directed IRA that can be invested in real estate.  The only problem is that the IRS states that you and your direct relatives are disqualified; thereofore you can not invest with your money.  I was wondering if there were any newtworks out there that linked up people with retirement funds with investors like me!  Also, previously stated was taking a blanket loan out on multiple properties.  What banks do this, and how should they be approached?

Title: Re: Do lenders impose a max on # of rental properties?
Post by: christopher w on October 31, 2007, 10:59:31 am
The blanket loans that I have referred my customers to are with small local or regional banks. To avoid the DTI issues you could go with a no ratio product, but I don't know of any that go to 90%.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: kkiefer216 on October 31, 2007, 11:13:04 am
My method of investing involves getting the loan for the smallest down payment, then using the money I would have paid in the form of a down payment for improvements to the property that will in turn, increase the value of the property as well as the gross rents I am bringing in.  I understand that banks are risk adverse, therefore they only take 75% of you rgross rental income, and then expect your DTI to come in under 50%, while factoring all your mortgages into the equation.  I beleive they are in essence, double dipping; where as they are already extracting 25% from the rental income to cover for operating expenses; so why don't they throw all the mortgage debt to the side and not factor that into the total DTI calc?  I assume that it is in the case that all my rentals all of a sudden became vacant, or nobody paid me rent all of a sudden, then I would have to find a way to pay all the mortgages from my paycheck!  That is why I need to find alternative ways to obtain financing, otherwise I'm never going to be able to quit my day job!  What should I expect when I go to the local bank to ask for a blanket loan?  Will they require the same ratio's, etc...?  What LTV will qualify for a no-ratio loan in this every changing market?  Will they require source and seasoning?
Title: Re: Do lenders impose a max on # of rental properties?
Post by: christopher w on October 31, 2007, 11:25:19 am
In regards to the blanket loan the qualifications that my customer qualified under were 80% LTV and a debt service coverage ratio of 1.2%. Meaning that if the properties total combined payments were $5000.00 then the total combined rents collected must be at least $6000.00. This loan was done by a small local bank in Cumming, Georgia where my customer resides.

In regards to your debt calculation question the mortgage debt is cancelled by the rent or 75% of the combined rent. They do not throw out the rent and still hit you for the debt or no one would be able to qualify for more than one or two mortgaged properties.

In regards to the no ratio program depending on your FICO you can get up to 90% on single family residences. Multi-family is lower more like 75%. You do need to have reserves. Most of the time it is six months reserves of PITI.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: kkiefer216 on October 31, 2007, 11:58:31 am
Let me clarify what I was speaking about in regards to the banks double dipping.  They first take your gross rental income and multiply that by 75% to factor for operating expenses.  This amount is added to your other income (wage income, etc...).  This amount is what is used for the income portion of your DTI calc.  On the debt side, they take your PITI on all your properties, along with any and all debt that would typically show on your credit report (credit card minimum payments, student loan payments, car payments, mortgage on personal residence, etc...) and total this number for your numerator.  The equation is as follows:

DTI = Debt/ Income

Therefore, when the bank has a DTI criteria of 50% or less, it is very hard to get there when you own multiple investment properties.  The reason why is that the original purpose of the DTI critieria being at say, 50%; is that the bank is anticipating the other 50% of your income to cover your utility bills, groceries, car insurance, savings, etc... ( anything you spend your money on that does not show on your credit report - your personal operating expenses and savings).  So the bank is not being fair by adding in your PITI into the debt part of the equation, but only including 75% of the rental income.  They should take the 75% of the rental income and not factor the PITI from the investment properties into the DTI calc at all, or give you credit for 100% of your gross rental income, then factor your DTI with the PITI.  It seems like the bank is safeguarding itself by factoring out "operating expenses, not once, but twice out of your investments.  That is why I am now having a hard time obtaining financing on great, profitable properties!!!  What ever I do, my DTI still comes in above 50%!!!   It's like they are expecting you to obtain rents that would be in excess of 267% of your PITI!!!!!

To prove this crazy percentage, I have entered the following equation assuming your PITI is $1000 (for simplicity).

.75i = 2d

.375(i/2) = d

i = (2d/.75)

i = ((2*1000)/.75)

i = 2,667

d = 1,000

i/d = 267%

This equation is showing that to meet the banks criteria, you have to take your rental income by 75%, then it has to be at least double the PITI on it.  The equation actually even astounded me!! I thought it would be between 225-250%  Sorry for the long post, thought it might be of interest to some!
Title: Re: Do lenders impose a max on # of rental properties?
Post by: christopher w on October 31, 2007, 12:38:16 pm
Your final equation is incorrect. It should be debt/income not the other way around.

d=$1000
i=$2667

$1000/$2667=.37 or 37%.

Based on your numbers this property would cashflow by the banks standard of 75% by over $1000. How could this possibly hurt you? Banks do not double dip. They just make you responsible for 25% of the payment. If you are buying and renting correctly all of your properties should more than cashflow. Banks do not like negative cashflow. Because negative cashflow on multiple properties is a recipe for disaster. I think this is the equation banks have seen lately.

negative cashflow= :banghead
foreclosure = :help
 :banghead = :help

Title: Re: Do lenders impose a max on # of rental properties?
Post by: kkiefer216 on October 31, 2007, 01:51:08 pm
this equation is set out to prove the required percentage of gross rents in relation to the PITI on the property is required in order to fall under the banks criteria (less than a 50% DTI ratio - assuming you had no other income or expenses).  Therefore, all things aside, the bank has set up a cushion for the possibility of the property sitting empty for a prolonged period of time.  To put this percentage into perspective, a 180,000 house with PITI of $1,700/mth would require gross rent of $4,539 to stand alone as an investment that meets the banks criteria.

$4,539 multiplied by 75% = $3,404.25

D/I = $1,700/$3,404.25 = 49.94%

That means that you are generating cash flow before normal operating expenses
of $2,839!!!   Wow, that is a great investment!!!   I got really good investments w/in the price range and PITI numbers close to above, although I am only pulling in between $500 to $900 positive cash flow before paying for water, sewer, and maintenance!!!  I think these are still great investments, although they don't meet the banks criteria; and based on the example above; how do any meet the criteria?  Can you explain the requirements for blanket loans in more detail?
Title: Re: Do lenders impose a max on # of rental properties?
Post by: christopher w on October 31, 2007, 03:00:53 pm
Keifer,

The house needs to rent for $2,275 a month to be considered as a stand alone investment that does not have a negative affect on your current DTI $2,275 X 75%= $1706.25. Things like this really only had an effect on qualifying back in the days of 100% NOO financing when banks took negative operating income as a disqualifying condition. Nowadays where you have to put down at least 10% negative operating income is not a huge deal. The higher the rent on the property the less of an affect it has on your DTI. I don't think you totally understand how DTI is calculated. The scenario you are describing takes into account that you have no other income and no other debt. For example on the scenario you described above. If the house rented at $4539 per month... $4,539 multiplied by 75% = $3,404.25. So if your only income was that rental property and you had no other debt then you are correct that is all you could qualify for. Most people that are investing in property have jobs, and other debt. In fact you have to have be employed either for yourself or someone else to get a loan on a house so the scenario you are describing is one that could not happen. Very similar to the question "if your car was going the speed of light and you turned on your headlights would anything happen?" So in every other case other than the one you described (no other income/no other debt) your numbers are incorrect. In every other case this house would only need to be rented for $2275 a month to have zero affect on your debt to income. You could buy houses all day long if you could find investments that worked with these numbers because the income would wash out the debt. As a matter of fact even using your scenario only your first house would need to bring in your numbers after that my numbers would go into effect. I hope this helps.

Title: Re: Do lenders impose a max on # of rental properties?
Post by: LandmarxProps on October 31, 2007, 03:16:37 pm
On a rental property debt is what you owe after applying .75 * rent to your PITI. If you owe nothing- no debt. It is not a reoccurring debt then.

Rent is not income but a payment toward PITI and expenses , then if there is money left over it becomes taxable income.

right?
Title: Re: Do lenders impose a max on # of rental properties?
Post by: LandmarxProps on October 31, 2007, 03:18:14 pm
On a rental property debt is what you owe after applying .75 * rent to your PITI. If you owe nothing- no reoccurring debt then.

Rent is not income but a payment towards PITI and expenses ,then if there is money left over it becomes taxable income.

right?
Title: Re: Do lenders impose a max on # of rental properties?
Post by: christopher w on October 31, 2007, 03:33:42 pm
100% of the PITI is added as debt and the rent X 75% is added as income. For example if the property PITI is $1000 and it is rented for $1200 then $1000 is added as debt and $900 is added as income.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: LandmarxProps on October 31, 2007, 04:36:49 pm
So for every $1000 of debt you need $2000 of income to keep your ratio at .5? On a rental at $1000 PITI you would have to be offset by a $2000 net rent not to hurt your existing DTI ratio?

How can you ever structure a rental property deal then that doesn't kill your DTI ratio? Especially if you own more than a few?
Title: Re: Do lenders impose a max on # of rental properties?
Post by: christopher w on October 31, 2007, 05:32:18 pm
No this is not correct. You don't need to have a 50% DTI per property just over all. If you have $1000 of debt and 1200 in rent you get 75% of that rent or $900.00. So for example if you make 60K per year then you make 5K per month. So lets just say all of your credit debt and current house payment total $2000 before you buy this property. You would be at a 40% DTI ratio. $2000/$5000 = .40 or 40%. Now say you wanted to purchase this property and it was going to be $1000 a month and rent for $1200. So now your debt would be $3000 and your income would be $5900 ($5000 plus the $1200 X 75% or $900). This would put you at a 50.8% DTI which would probably be okay depending on your credit score and your assets.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: LandmarxProps on November 01, 2007, 10:06:39 am
Hey Chris, that is my point, you just increased your DTI by 10% with 1 property.

I would like to own multiple rental properties. What's the way to go about adding more rentals to your portfolio without banks denying you because of your DTI ratio? What if you are cash flowing nicely on every house you own? Most loans would be around 80% LTV for me.

Will banks treat purchase to lease properties different than primary or second homes? In other words isn't that how they do it for commercial property analysis? Basically see the ratio of rents to your costs to decide if the property is worth buying or lending on?

Thanks.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: kkiefer216 on November 01, 2007, 10:55:19 am
Thanks for clarifying Chris, although I think you spoke to soon.  In your most recent post you proved my point!  I have five properties, all cash flowing nicely, my income and expenses by themselves brings my DTI in around 35%.  When you start adding my properties at 75% of the gross rentals and the PITI associated with them, my DTI goes up to 83%.  By the way, if you had rents of $2,275 and PITI of $1700, your DTI on that property would be 100%.  Therefore, given what your other income and expenses were, it would increase your DTI.  Lets say for example your income was $5,000 and expenses were $1,750.  My DTI is then 35%.  When you add in this property my DTI increases to ((1,750 + 1,700)/(2,275*75% + 5000)) = 51.45%.  Now keep the personal income and expenses the same, and add four or five more properties like the first; you see where I'm going!  My explananation before was stating no other income or expenses, which is obviously never going to be the case, but was only for simplicity in proving my equation.  I'm not trying to argue, I am enjoying reading all the posts and learning new things from other professionals!  If you have any suggestions to somehow keep from my DTI from continuing to increase, please let me know.  Did you have any more info on the requirements for blanket loans?  I am getting ahold of a bank in my area shortly.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: christopher w on November 01, 2007, 11:14:58 am
The only way to keep your DTI from increasing with each property is to buy at a large discount and rent at market value. I understand you are not trying to argue but your numbers are not correct. Your original argument was that banks double dip and that you had to make over 250% more income on the property than debt to actually qualify for several properties. Now your changing it to "it DOES have an affect on your DTI". They are not the same argument. If you are renting it for $2275 and your payment is $1770 then the rent would wash away the debt and it would have ZERO affect on your DTI. Because  the debt that was added would be almost the same as the income that was added so your DTI would stay the same. That is all I am saying. Another option to use is to go with No Ratio loans to buy your houses. Using this type of product your DTI is not considered just your credit, the LTV, and your assets are used to qualify. Finally, I have no more information on blanket loans. Call around your area and speak to some loan officers at local or regional banks.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: kkiefer216 on November 01, 2007, 11:32:39 am
Thanks for the info.  Again, look at my previous post.  What I meant by the bank double dipping is the fact that they are only taking 75% of your gross rents in addition to the expectation that with the property added into your DTI calc, that your DTI will stay w/in their criteria.  The whole reason for the bank requiring a DTI of 50% or less is to factor in regular expenses from your personal life (groceries, utility bills, savings, etc...)  The same thing is done when the banks take 75% of your rental income for operating expenses (water, sewer, maintenance, etc.).  Therefore, to not double dip, the bank should net 75% of your rental income, net it against your PITI, and add or subtract that number to your personal income number.  Then they should factor your DTI based on your personal expenses and your personal income plus the net rent income (75% rents - PITI).  I don't know how to explain this any easier!  The banks do not "wash away the debt" with your rental income.  The 75% of gross rents gets added to your personal income, and 100% of your PITI get added to your debt.  Therefore, when you have a property with gross rents taken at 75% that equal or are close to the PITI on the property, this is going to negatively affect your DTI.  Thanks for the help, I will be getting in contact with some people to try to find a no ratio product out there.  I am assuming there are not many, if any, doing these on non-owner occupied three families; even with a 80% LTV.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: LandmarxProps on November 01, 2007, 12:51:30 pm
There are 2 scenarios here both are completely different. Which is right? Still getting 2 answers.

Scenario #1. If the 75% of the rent pays the debt on a property it does not affect your DTI.
This would wash out the property and it is no longer added to income or debt on the DTI ratio.

Scenario # 2. The next is to add 75% of your rent to your Income on the DTI and your PITI amount to your Debt  in the DTI. Let's look at an example.
 
Debt currently: $2000 Income currently: $6000
House A Net Rent: $1000 House A PITI: $1000

1. If the property does not affect the DTI because the rent pays the debt then the DTI is $2000/$6000 = 33%.  Your DTI Stays the same and the bank in this example does not count the property toward your DTI. It washes out as was mentioned earlier in this post.

2. BUT on the second scenario if you add $1000 rent to income and $1000 PITI to debt you get a completly different number. Here it is: $6000 + $1000 = $7000 debt.  $2000 + $1000 = $3000
$3000/$7000= 43%. Your DTI goes up 10% in this example from the previous example. The debt therefore is not washed out even though the rent covers the debt payment.

Which one is correct? There is a HUGE difference between the two when you start buying and holding multiple properties. That is the question we are trying to get at.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: kkiefer216 on November 01, 2007, 01:29:37 pm
Props,

Scenario 2 is correct.  I own five properties and have watched my DTI get higher and higher.  They in fact take 75% of your rental income and add it to your income, as well as taking 100% of your PITI and adding it to your debt!  My properties generate between five and eight hundred dollars positive cash flow each, although my DTI keeps on going up with every property I buy.  The suggestion to find lenders that do no ration loans is the way I may have to go, outside of finding private lending at this point.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: christopher w on November 01, 2007, 01:34:48 pm
Your DTI is only affected if the PITI is more than 75% of the rental income.

In the example you showed your DTI would be negatively affected by this property because you are having $1000 to your debt but only $750 added to your income. So your DTI would go from 33% to 44%. The only way for the property in the example to not have an effect on your DTI would be if you rented it for $1350. $1350 X 75% would be $1012.50.



Title: Re: Do lenders impose a max on # of rental properties?
Post by: christopher w on November 01, 2007, 01:36:49 pm
Keif,

You must be buying jumbo size properties to have that much cash flow and still be getting hit on your DTI.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: christopher w on November 01, 2007, 01:50:20 pm
Kief,

So you went from saying this...

So the bank is not being fair by adding in your PITI into the debt part of the equation, but only including 75% of the rental income.  They should take the 75% of the rental income and not factor the PITI from the investment properties into the DTI calc at all, or give you credit for 100% of your gross rental income, then factor your DTI with the PITI.  It seems like the bank is safeguarding itself by factoring out "operating expenses, not once, but twice out of your investments.  That is why I am now having a hard time obtaining financing on great, profitable properties!!!  What ever I do, my DTI still comes in above 50%!!!   It's like they are expecting you to obtain rents that would be in excess of 267% of your PITI!!!!!


To saying this...

  The 75% of gross rents gets added to your personal income, and 100% of your PITI get added to your debt.  Therefore, when you have a property with gross rents taken at 75% that equal or are close to the PITI on the property, this is going to negatively affect your DTI. 

And your acting as if I don't understand what you are saying. When in fact I said this...

100% of the PITI is added as debt and the rent X 75% is added as income. For example if the property PITI is $1000 and it is rented for $1200 then $1000 is added as debt and $900 is added as income.

Yesterday.

I don't mind conversation and trying to help people understand something that might seem difficult. But don't act as if you have been trying educate me and I just was not getting it. I do this type of calculation all day everyday.

This...

100% of the PITI is added as debt and the rent X 75% is added as income. For example if the property PITI is $1000 and it is rented for $1200 then $1000 is added as debt and $900 is added as income.

Is much easier to understand than this...



To prove this crazy percentage, I have entered the following equation assuming your PITI is $1000 (for simplicity).

.75i = 2d

.375(i/2) = d

i = (2d/.75)

i = ((2*1000)/.75)

i = 2,667

d = 1,000

i/d = 267%


Now that we have that settled. On to better topics. You should be able to find no ratio loans at almost any mortgage company. Although on multi-family you will most likely be capped at 75%. Although there are wholesale companies that will go to 80-90% depending on credit. You will need to speak with your mortgage broker to use them though as wholesale lenders do not deal with the general public. Hope this helps.

Title: Re: Do lenders impose a max on # of rental properties?
Post by: kkiefer216 on November 01, 2007, 02:21:18 pm
Don't get offended, but you didn't explain yourself very well either.  Earlier today, you said:
If you are renting it for $2275 and your payment is $1770 then the rent would wash away the debt and it would have ZERO affect on your DTI. Because  the debt that was added would be almost the same as the income that was added so your DTI would stay the same. That is all I am saying.

That would in fact increase your DTI: 2/4 = 50%; add 1 to both the numerator and denomerator: 3/5 = 60%. 

Alright, I think we are all now on the same page.  Thanks for the insight!  I will be contacting some brokers to help me find no ratio products!
Title: Re: Do lenders impose a max on # of rental properties?
Post by: christopher w on November 01, 2007, 02:40:15 pm
Kief,

You might try contacting investmentloans who posts on this board. He will be able to help you find the products you need.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: kkiefer216 on November 01, 2007, 02:52:25 pm
I will try contacting him.  Thanks for the info!
Title: Re: Do lenders impose a max on # of rental properties?
Post by: Investment Loans on November 01, 2007, 09:20:37 pm
By the way, if you had rents of $2,275 and PITI of $1700, your DTI on that property would be 100%.  Therefore, given what your other income and expenses were, it would increase your DTI.  Lets say for example your income was $5,000 and expenses were $1,750.  My DTI is then 35%.  When you add in this property my DTI increases to ((1,750 + 1,700)/(2,275*75% + 5000)) = 51.45%. 

KKiefer,

Forgive the fact that I didnt read through the entire post, a little head spinning.  But I got as far as this quote from you and think I realize where you might be in error.  The dti factor would change very little for that example.  Your payment would be treated as a wash.

This is the way that a lender will calculate rental income.

Your Income = $5,000

Your expenses (without mortgages)= $1,750

subject properties:
Rental income x 75%
If this figure is a negative the defficiencey gets added into your expenses.  If it is positive it gets added into your income.

Other properties:
Rental income x 75%
Same thing as above.

In your example if this was the subject property with no other properties factored in your dti would actually go down a bit.  The difference of $6.25 would be added into your income.
$2275 (rent) x 75% = $1,706.25
Subtract out PITI of $1,700 leaves $6.25 of positive cash flow.

Your income is now $5006.25.   Expenses still $1,750 (for those with additional property- any negative cash flow after the 75% factor would be added in here).

Dti 34.96%

Adding on properties that cash flow like your example would be fine.  Where investors get caught up with dti issues is when properties are vacant, rates too high, or over leveraged.


Title: Re: Do lenders impose a max on # of rental properties?
Post by: Investment Loans on November 03, 2007, 03:13:51 am
KKiefer,

Do you have any questions on the figures I used and how they differed from your calculations?
Title: Re: Do lenders impose a max on # of rental properties?
Post by: LandmarxProps on November 03, 2007, 11:55:40 am
InvestmentLoans, I agree with you but so many other brokers and loan officers are adding 75% of  the rent to income and the mortgage payment to debt. In almost all cases this raises the DTI significantly even on an income producing property.

I even called Countrywide today and the loan officer thought that is how they did it. After a lot of debate I will be talking to the branch manager on monday to try and confirm how they calculate their DTI with income producing properties.

On an income producing property it is either income OR debt only, right? Why do so many people factor it in like a NON-INCOME producing property??

How can something so important be so misunderstood by professionals?
Title: Re: Do lenders impose a max on # of rental properties?
Post by: lassitermortgage on November 05, 2007, 07:23:33 pm
Don't forget reserves. I have a client that we are refinancing his #10 property but he needs to have 6 mos PITI per property. Luckily my guy has it but that's a lot of moolah.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: kkiefer216 on December 05, 2007, 05:31:59 pm
Investment Loans, I see how you calculated the DTI, although all the lenders I have spoken with calculate it differently.  They add the debt shown in your credit report (the mortgage on the subject property) to your total debt, then they take 75% of your rental income on that property (taken at 75% to compensate for operating expenses) and add this number to your income (or subtract it from your income if it comes out as a negative number).  The income therefore does not wash out your debt due to the fact that lenders require you to maintain a DTI ratio of, say 50% or less (usually must be lower than 50% give or take 10% depending on the lender).  The reason I have been told for this calculation is that since the properties are considered residential and not commercial in nature, they use it to calculate your DTI in the case that all your tenants decided to not pay rent/move out and you had to pay for all of the expenses out of your pocket.  That is why they are asking for the DTI to be under "50%" to factor in such rare occurences.  The problem I have with this is that I am a seasoned investor with five properties and have been fully occupied for the past two years.  The risk that the bank is factoring for would be understood if I just bought my first investment property and didn't have a track record of earning income on these properties.  In addition, I have economies of scale; whereas I have four other investment properties that supply me with positive cash flow on a monthly basis in addition to my full time job.  Let me know your thoughts.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: Investment Loans on December 06, 2007, 02:51:43 am
Whoever is giving you the information is incorrect.  Income from rental properties is not calculated like that.

For existing (non subject properties) 75% of the lease income is used. Or if going full doc, the schedule C income is used if the property was reported on the most recent filed return.

The total PITI is then subtracted from that.  If the result is positive then that would be added into your income. (at this point the mortgage payment is already accounted for and should show back up in liabilities)
If negative this figure gets added to your liabilities.  (at that point you would not any any type of income from rental back into the income side)

For the subject property a couple things need to be considered.  Many lenders have a 2 year landlord history.  If you dont have the 2 year landlord history then the income for the subject property has to be left off.  (not all programs are like this but most are).

If there is a 2 year history and income is used then use 75% of the rental income (or if full doc use tax return schedule C).  The same forumla as above applies...75% of rent against full piti...positive added to income, negative added as liability.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: kkiefer216 on December 06, 2007, 03:36:30 pm
the information is what I've been receiving from the lenders I've been dealing with.  Please let me know of several lenders that calculate DTI your way, so I can contact them for my future financing needs!
Title: Re: Do lenders impose a max on # of rental properties?
Post by: Investment Loans on December 06, 2007, 11:02:10 pm
Are you a broker?  The lenders that I work with are all wholesale and do not work with borrowers directly.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: kkiefer216 on December 07, 2007, 11:20:13 am
no, I am just an investor.  Maybe you could refer me to some brokers that do work in Ohio.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: Investment Loans on December 07, 2007, 07:19:56 pm
You definitely need a good mortgage broker if you're in OH.

With only a few lenders doing stated loans in OH determining that you can go full doc is imperative.

There's forum rules about what I can advise on who to use.  Modestly I can say I know of someone though. ;-)
Title: Re: Do lenders impose a max on # of rental properties?
Post by: cornerstonesvs on December 09, 2007, 03:23:58 pm
We have clients who hold over $100 million dollars in real estate, residential and commercial, with loans from the same bank.  if the numbers support the deal, the right bank will finance it.  Especially in the commercial world.

if you are dealing with a bank who is capping your lending to only 10 properties then you are dealing with the wrong bank.  It's time to move on.  Period.

They're not hard to find, banks like BofA, citibank, wells, etc.  They all have departments that deal with investors.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: kkiefer216 on December 10, 2007, 08:30:09 am
Because I am purchasing three family dwellings (1-4 family = residential), I am limited to the lenders guidelines for residential properties.  I need to talk to lenders who are not planning on packaging my loan with others, therefore subjecting them to guidelines typically placed on owner occupied single family dwellings.
Title: Re: Do lenders impose a max on # of rental properties?
Post by: REICLUB007 on December 10, 2007, 06:37:16 pm
Does anyone know any good lenders that does Blanket loans?
Title: Re: Do lenders impose a max on # of rental properties?
Post by: christopher w on December 11, 2007, 09:40:40 am
There are several nationwide blanket lenders. What are you looking for in a blanket loan? Most of the time minimum loan amount is 1M. 75-80% LTV. 25 year amortization.