debt to income - Posted by Neil

Posted by Kurt Schultz on October 18, 2006 at 19:20:36:

Very few residential lenders will allow you to hold the mortgage in the name of an entity.

It’s much more common with commercial mortgages.

If a lender does allow it at all, you typically have to apply for a mortgage in your own name, and then vest title in the name of the entity at close of escrow. They don’t usually care who pays the mortgage for you, but they may require a review of your entity’s formal paperwork (in order to determin if the entity is appropriate).

If you want to know more about this, you might be able to mine information from RE Attorneys or Title Companies (whichever is used in the areas you’re invested in). Call them on the phone and ask if they ever do transactions where residential property was placed into an entity before close of escrow. Try to find out which lenders they worked with on those kinds of deals.

If you can find that out, you can either apply to those lenders directly or you can direct your loan agent to work with those lenders.

debt to income - Posted by Neil

Posted by Neil on October 15, 2006 at 22:03:25:

My wife and I have purchased several rental properties in the last couple of years. They are all currently rented and all have modest cash flow. We are looking at another purchase, but when I called my mortgage broker she said my debt to income ratio was such that I would not be able to get a “great rate”. Our credit is otherwise good, and the only debt we have other than mortgages is 1 car. As well, our personal income from non-realestate is close to six figures. She said the loans on our rental properties were scewing our debt to income ratio. If this is true How due people own dozens or even hundreds of propertis? I quess now I just want to know what can I due in the future to help avoid paying higher rates due to my debt to income ratio?

Re: debt to income - Posted by Kurt Schultz

Posted by Kurt Schultz on October 18, 2006 at 16:31:14:

Hi, Neil:

Here’s what could happen if you moved your properties into an entity of some kind.

  1. You might possibly trip the DoS clause.
  2. You might have to pay a local transfer tax.
  3. You might trigger a reassessment of the properties, which would probably increast your property taxes.
  4. You might report only your entity’s income, instead of your current mortgage obligation, other costs and rental income (this could improve your DTI ratio, because they’d accept 100% of the net income from the entity instead of docking the rental income by 25%).
  5. You might pay additional income taxes.
  6. Managing the entity would cost you more of your time. You might be able to set it up so the annual maintenance time is minimal.
  7. Depending on the entity, you might gain a substantial insulation from liability.

Re: debt to income - Posted by EricM

Posted by EricM on October 18, 2006 at 11:05:55:

If you have modest cash flow, it should be no problem to get this done.

I would advise finding another broker or bank to look at the situation.

Your mortgage payments on your investment property can generally be offset by 75% of your rental income by most lenders and even higher by some others.

There are other mortgage products out there as well that can be used as well.

You have a lot of options if you have good credit and income.

Re: debt to income - Posted by Max-Va

Posted by Max-Va on October 16, 2006 at 13:34:13:

Most lenders have a “No Ratio” product. With this type loan DTI is not used. It costs alittle more than a Full Doc loan but alot less than a No Doc. See you local mortgage broker

Re: debt to income - Posted by mcole

Posted by mcole on October 16, 2006 at 10:00:39:

Typically, a lender will allow you to count 75% of your rental income in your total income. So, whatever your PITI payments are, you need the rent to be 33.334% more than that to break even on your DTI. If your rents are at a higher percentage, it will actually help your DTI.

Re: debt to income - Posted by RichardS

Posted by RichardS on October 16, 2006 at 09:45:14:

I would love and answer to this question as well.

But I assumed that is when you startup and LLC or place them in a trust.

But you still have to use your own credit at least at first. I guess you would have to place the properties in a different entity for several years.

Re: debt to income - Posted by Tonya (in Virginia)

Posted by Tonya (in Virginia) on October 18, 2006 at 18:16:56:

How do you move your properties into another entity like a LLC?

I know how to transfer the deed into my LLC name, but how do I move the loans out of my name and into the LLC name? I approached a mortgage company about this but they said they do not do loans for LLCs. Do I approach a bank for this? What documentation will the banks require? Will I need to have equity in my properties to move the loan into the LLC name?