Struggling with Sky-High Debt-to-Income? Discover the Underground Strategy to Snag Rental Properties Like a Pro Despite the Odds!
Ashley:
Okay, we’re going to take a short break. When we come back, we’ll have another question from a rookie investor. Okay. Welcome back from our break. Today’s next question is from Daniel. Since joining this forum, less than a year ago, I had the good fortune to connect with a real estate pro who helped me buy my first investment property, a house hack owner occupied duplex with 5% down. I’ve caught the bug and want to buy another property as soon as possible, but my debt to income is already dented from my current mortgage and my six figure student loans, which I’ve been comfortably paying back. How can I get around this? Or is it more prudent to pay off these loans first? Okay, so I think probably the first thing to talk about is DTI. What is DTI? And it is your debt to income. And this is calculated by mortgage brokers, lenders, banks, when they’re seeing how much debt you have compared to your income.
So for example, if your monthly mortgage payments add up to $10,000, maybe that includes your auto payment, your student loan payments, that’s $10,000 and then your monthly income is $20,000. So that means you have a 50% debt to income. Your debt payment is 50% of your income. Okay, so with this question from Daniel is saying he wants to buy another property as soon as possible. Okay. So right here we have two options that we’re not sure what he is trying to do and is you can live in his house hack for a year and then he’d be able to move to another property to make it his primary. When he did this option, the bank would then look that he’s filling his side of the duplex with rental income and they could take a portion of that, a percentage of that rental income and count it towards his income, and that would lower his debt to income and that would free up some debt to income room for him to purchase his next primary.
If he’s going to buy the second property solely as an investment and not a primary residence, then he should look at A-D-S-C-R loan. So this is a debt service coverage ratio loan where instead of looking at your debt to income, it is looking at the income of the property and how much debt you’re putting onto the property. So what the lender will want to see is that the property is able to support itself and to pay the mortgage payment on the property. I think that is probably the best route for him to go. And then he doesn’t have to worry as much about paying completely off his student loans, especially when there’s six figures to be able to get that debt to income lower to go and purchase the next property.
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