high income to debt due to income properties

Guest

We own two income properties, plus our home. We bought an SFR rental in 2006, then upgraded our own home and turned our old home (owned 8 years) into a rental this year. Our household income is $110K. We'd like to buy another property in the next year but our income to debt is high because of the 75% rental income rule. We'd like to buy another rental in the next 12-18 months but we are unsure how to over some the income to debt issue. So how do we continue to grow our investments?

Thanks,
TAEL

savior70 · Posted: Sat Nov 07, 2009 5:02 am Post subject:

Hi,

As far as I'm aware of, if you are vacating your current primary residence for a new primary residence, the mortgage payments will be included as your debt, unless the LTV on the property is less than 75%.

The lender will assume that 75% of your rental income will remain after costs for utilities, maintenance, etc. has been paid. They will then subtract mortgage payment, taxes, insurance from that. If the difference is positive, it will be added to your income. Otherwise, it will be considered as your debt. Talk to a loan officer and discuss the issue with him. He ought to be able to help with the issue.

Guest

Tael,
This may not be the answer you're looking for, but if you have a high debt to income ratio, why would you want to continue to over extend yourself?
Thousand of people suffered foreclosure when the housing bubble burst, because they had more debt than they could handle and lenders have adjusted their underwriting accordingly.
Do you have six months of reserves (all mortgage payments)? That's another consideration.
Slow down, get your financial house in order before you add to your investment portfolio.
Good Luck!

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