Hello again,
Ok, here is the next dilemma: (These seem to be very common lately.)
Mortgage Broker A tells me that my debt to income ratio is 43% after looking at my credit report. (After the purchase)
Mortgage Broker B tells me that my deb to income ratio is 83% after looking at my last year’s tax returns. (because of deductions)
2 Questions:
If you go full doc on a loan, does the lender need to see tax returns?
If you are buying a rental property, can you use some of the rental income to offset the DTI?
You do not have to use tax returns if you are a W-2 employee. If you are a 1099 business owner, you will have to use tax returns to prove income and the lender will use your bottom line. Some lenders will use a 12 or 24 month average of bank statement deposits, but this is usually sub-prime (lower than 620 credit score).
You can use rental income to offset mortgage payments on the properties. The lender will use 75% of the rents you collect to account for possible vacancies. If you go full doc, you will have to provide signed leases. If you go stated income, you will not have to provide documentation.
Ok thanks. Is that the case with all conventional lenders? See, here’s my situation. My husband is paid on a w-2 and I am paid on a 1099. Would the lender only want to see my tax returns and not my husbands? We filed joint last year, so how will this work?
Thank you
JayDee
The lender will want to see the tax returns which has both of you on there along with your husbands w2. As a business owner, you probably had some writeoffs.
Our job as mortgage professionals includes knowing how to analyze tax returns as a lender would. This includes your rental property income in which depreciation can be added back in. (this is where having a great CPA comes in).
In most cases, where my client will be border line, I either use a stated income or no ratio program. The interest rates are very comparable to full doc.
There are also programs out there for bank statements which are for clients with 620+. These are different from the nonconforming (lower credit) loans which except statements.
Actually no ratio is my preferred method for investors that have large portfolios with very little employment income. If a stated income is used, the lender can always go back in old transactions to see what type of income was previously stated on the loan application. A larger incerease in a short period would throw up red flags.
Ok I am understanding more. Thank you.
I am looking over my own debts, and if I supply the numbers, can you tell me what the ratio is?
According to last year’s tax return, me and my husband’s income combined (after all write offs) is $58,515
So that is $4876 a month in income. ($37560/Year)
Our total debt including this new mortgage comes to $3130.00 per month. Is this calculation correct:
37,560 divided by 58,515 =
Would this DTI be 64%?
And if this new rental property brought in $14,400/year, and I took 75% of that (10,800), then would this calculation be correct:
Original Income Plus Rental Income (58,515 + 10,800) = 69,315
Total Yearly Debt Divided by Total Income (37,560 divided by 69,315)
New DTI: 54%
Is this accurate?
Thanks JayDee
I am trying to figure out how the mortgage brokers I am working with are coming up with such drastically different DTI’s.
That’s right, but also make sure you are taking into account the new mortgage on this property + taxes and insurance when calculating your liabilities.
Wow! That’s the fastest reply yet! Ha!
Those numbers do reflect the new mortgage (including taxes and insurance)
I am stumped as to how these two mortgage brokers came up with such different DTI’s.
Question: Other than looking at one’s credit report, is there some other way to tell what one’s debt is?
Tax returns don’t reveal that kind of info, right?
JayDee
You stating what your gross income has been from your business.
This is the figure which underwriters have explained could be used when income on the tax returns is not sufficient enough to qualify.
Anything that is stated over your gross amount, just to make the deal work, borders on the fine line of fraud.
This is why the no ratio program can be very useful. The income date on page 2 of the loan application is left completely blank. Thus the underwriters have no ratios to calculate. Again, rate difference is minimal.
