If this is the only housing expense you the buyer would have, it would be necessary to ignore the $1,000.00 per month rental income and use the $650.00 per month in the debt-to- income calculations. If you the buyer have a primary housing expense, we are able to completely eliminate the $650.00 per month since it is more than paid for by the rental income. For those with a history of rental income, we not only refrain from adding the $650.00 expense to their debt-to-income ratio calculation, but also add the $100.00 net rental income to their income improving the deb-to-income ratio. The ability to qualify for housing at that point is based on their credit meeting the criteria and the funds they have available for down pay- ment and reserves. With high credit scores, substantial assets, and the ability to use rental income to offset the expense of the property, it is plausible that qualifying can contin- ue uninhibited. •
vehicles, student loans, etc. to the housing expense, we can calculate the back-end or max ratio of total debt payments against the gross monthly income. When the home buyer is looking for the maximum payment eligibility, I typically focus on verifying the total usable income and dividing that by the accepted debt-to-income ratio. When that figure is determined I then back out the monthly debts as disclosed by the buyer as well as the credit report to come up with the remaining monthly funds we could reasonably allocate for housing. After that dollar figure is discov - ered, the maximum allowable loan amount can be determined with spe- cific calculations factoring the term, interest rate, potential taxes, insur- ance and HOA. This is not precise as the property taxes, home-owners insurance, and possible HOA would be an educated guess until a specific property is identified. For the first-time real estate in - vestor without a personal housing ex- pense, this calculation method would be accurate. For those who have a primary residence expense (PITIH or Rent) and are purchasing a one- to four-unit investment property, it is
possible to use the rents evidenced by a lease agreement and or the appraiser via a rental income survey to offset the anticipated payment. For those seasoned investors with a his- tory of owning rentals, we could use any cashflow remaining to increase the qualifying income making the debt-to-income ratio improve. Here is an example on how this calculation works. For this example, we will consider the property being considered for purchase has a PITIH of $650.00 and a lease agreement form the tenant of $1000.00. This is very possible with today’s low rates and the buyer putting 20 percent, or more, down. Gross rental income ($1000.00 per month) -25% vacancy/maintenance ($250.00) =Usable rental income ($750.00) -PITIH ($650.00) =Net rental income/ loss ($100.00)
Aaron Chapman has been in the finance industry since 1997. His clientele is focused on those investing in multiple properties for long-term cashflow. He is
presently ranked in the top 20 individuals for transactions closed with an industry of more than 300,000 licensed loan originators.
SecurityNational Mortgage Company, and its loan officers, unless individually licensed and specifically denoted in their credentials, are not qualified to, and are prohibited from representing themselves as accountants, attorneys, certified financial planners, estate planners, investment specialists or tax experts, and will not advise you in those matters. Always seek the advice of a licensed professional. This article is for informational purposes only, contains the opinion of the author, not necessarily the opinion of SecurityNational Mortgage Company, and should not be construed as lending advice. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet LTV requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines, and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over life of loan. Reduction in payments may reflect longer loan term. Terms of the loan may be subject to payment of points and fees by the applicant. Equal Housing Lender. SecurityNational Mortgage Company Inc. NMLS# 3116. Any amounts, figures, payments or loan terms stated are based on continually changing markets, rates, loan programs and borrower specific qualifications, and subject to change without notice. See loan officers featured for a personal consultation and accurate pricing.
(The author consulted Dr. John A. Abernathy.) The above information is the sole intellectual property of the author. Any distribution without written consent of the owner is strictly prohibited ©.
thinkrealty . com | 69
Made with FlippingBook Online newsletter