Subject: Re: Problem with lender Debt ratio Calculation  involving Rental
Date: Fri, 10 Sep 2004 13:48:32 -0500
From: "John A. Weeks III" 
Newsgroups: misc.invest.real-estate

In article <332dd43b.0409101009.68a5e5bf@posting.google.com>, Jess
 wrote:

> I am applying for a home equity loan with a majar mortgage company.
> I think they are not doing the debt ratio Calulation correctly with
> Rental Income and Mortgage.
> 
> Monthly Employment Income : $4000
> Mortgage for Home : $1200
> 
> Mortgage for Rental : $800
> Rental Income : $1000   (they count only 75% -> $750)

The 75% is a standard number -- you should be putting away 25%
for set-asides like repairs, upgrades, and a new roof.

> They are adding up all the mortgage payment for my Debt
> ($1200+$800=$2000)
> and adding up all the income for employment and rent ($4000+$750 =
> $4750)
> 
> The debt ratio they came up with is 2000/4750 = 42% which is too high
> and I can't quality for tue loan.
> 
> But I believe they should use the net rental income/loss instead for
> the rental property.
> Net rental income = $750 - $800 = -50 (loss)

There is one tiny problem with doing it your way...what happens
if you go a month or two or three with no tennants?  You are
still responsible for the full mortage on the rental unit whether
or not you are collecting rent.

While you may not qualify for a conventional credit, you should
be able to qualify for one of the non-traditional or brokered
loans.  Yes, the interest rate is going to be higher, but that
is the cost of entry in your case.  I have seen both Countrywide
and Washington Mutual write loans for folks who are pushing the
ratios, so give them a try.

-john-

-- 
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John A. Weeks III            952-432-2708         john@johnweeks.com
Newave Communications                       http://www.johnweeks.com
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