Wondering how DTI is calculated, with the following details.
Have a rental property with mortgage X amount. Its PITI is covered by rent. It’s been 16 months (current tenant moved in 4 months ago).
Our combined income is Y amount, but ~50% comes from RSU/Bonus. I’ve heard lenders taking RSU amount into calculation, but wonder how it’s done - is it thru W2 for past couple of years?
General DTI limit is 45% of Gross Income. Does that sound about right? Given the rental property’s PITI is covered, can I exclude its mortgage from DTI calculation?
Jumbo programs are unique and vary by lender. Some count bonus/RSU, but they have a lower DTI threshold. Most want to see 2 years of rental history or they discount as was mentioned. Some won’t even count it at all with less than 2 years.
Marcus is correct …experienced all that when buying primary some time back …all the banks have different rules and whats worse even loan officers in the same bank but different branches have different requirements based on their underwriters …case in point went to a branch in mt view and the guy would loan me only a certain amount …same documentation same everything the guy in sunnyvale same bank was able to do higher …relationship matters …both done in the same week …
First, they will check two or three years W2. They may take average of it or last year depends on lender.
In you pay check, add pay+bonus (I assume last year pay and bonus as this higher). Divide by 12, this is your monthly pay. Take 43% (assuming jumbo loans), this is Say Amount “A” monthly mortgage possible from paycheck.
Some lender needs 2 year tax filing of rent, otherwise it is difficult as they may account only 70% of current rent as actual rent. If you have filed rent last 2 years, they will consider last year actual rent/12. If you have not filed 2 year tax filing rent, they consider 75% of rent. Say this is “B” as monthly rent
Some lender consider depreciation and some ignore depreciation. They may take all 2 years expenses or current expenses such as monthly PITI amount. say this is “C” per month
Then, coming to RSUs. They will ask vesting schedule for all the years for all the RSU awarded. They will calculate all possible vesting amount for next 12 months. They will account 40% tax and 60% your amount. Take your next 12 months RSU vesting amount multiply by 0.6 and divide by 12 to calculate monthly available RSU amount Say this is “D”
Your Eligible monthly PITI for future home is PITI (F) = A+D+B-C . Based on your interest rate, back work your PITI to calculate eligible home
Important: For 6 months reserve, they will account 60% of your retirement savings (401k+IRA…etc). You must have 6 months reserve for combined PITI = (rental PITI+Future PITI)* 6 in addition to 20% down payment as liquid cash reserve.
This was six month old, but I do not know current changes. This is just guidance as many calculation vary by lender.
May be john (loansbyjw) /Bank of America may know precise calculation/amount check with him.
Thanks for all the detailed info everyone! This certainly is a complicated process when RSU + rental properties are involved. So far, we’ve been putting the maximum down payment to lower the monthly mortgage, so that made it tough to prove “cash reserve” of 6 months (and especially a surprised the last minute when we needed to get the loan asap). Good to know that it can be counted from 401k.
6 month reserve is not that much. You can use your stock portfolio and 401k as reserve. If you are really short on reserve, I think you need to shore up your reserve and don’t put excessive amount into down payment.
If you really like to put a large down, consider to get a HELOC for emergency protection.
HELOC is another mortgage, consider this as 3rd mortgage. Going through the same calculation on HELOC is complex as lenders consider 1% of HELOC (no matter what interest rate he gets) as his monthly PITI.