Stacy, Home Buyer in Wildwood Crest, NJ

Looking to buy a condo, self employed. Have 20-25% down wondering if condo fee will be included in my DTI ratio? This is an investment property.

Asked by Stacy, Wildwood Crest, NJ Sat Jan 22, 2011

Also, Will the underwriter consider the rental income the property will produce as part of my income?

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Rick Spackman’s answer
Another great question. If you were buying a duplex and it was going to be your primary, the answer is yes. However, with guidelines changing all the time and the fact they have become very strtict as a result of the real estate bubble bursting as a result of loose underwriting I would make an educated guess and say no they will not consider the rental income as part of your income. Please never buy a rental property if you need the rental income to pay any of the mortgage debt service, If you can afford it without income and then are able to produce income then consider that income as a bonus. Please never count on it.
0 votes Thank Flag Link Tue Jan 25, 2011
Yes I agree with your statement but I may have another angle that we maybe able to use since all your properties are in PA and they a multi units and singles.... Give me a call when you get a chance lets chat

Tim Robbins
0 votes Thank Flag Link Tue Jan 25, 2011
The debt to income ration the lender will be looking at for the purchase is both the mortgage and the monthly condo fees. Yes, a portion of the rental income will be added to your personal income in their formulas - not the whole thing because they make the assumption that it will be vacant a portion of the time.
0 votes Thank Flag Link Mon Jan 24, 2011
Good question: Lender is looking at your current DTI, depends on the undrwriter if they will consider this DTI with the assumption that a condo will be part of your portfolio now. Must warn you though, Fannie mae requires a majority of the units within a condo complex to be owner occuiped and not investor units. Many buildings have mor investors than secon home owers. You might want to consider your local bank or a saving and loan. Being self employed hurts to unless you can do a stated loan. Any other question please feel free to contact me directly.
0 votes Thank Flag Link Sun Jan 23, 2011
Thank you all for the info. Yes, my husband and I own 7 investment properties (5 FNMA loans, 3 HELOCS, and 2 commerical loans, as those properties are over 4 units each). We also own an online retail business, and I'm a licensed realtor here in PA; however, we sell mostly SFR's and MULTI's here, not Condos (hence, my questions about HOA fees). Regarding tax returns/showing income, that's no problem, we've been increasing our net every year for the past 7 years.

We tried to purchase a unit last year in North Wildwood; however, when the lender found out about the FNMA loans (like Tim Robbins suggested) all the rules changed and the deal was killed. They wanted 25% down, not 20%, wanted to add in PMI (on a 75% LTV?!) and wanted to see 6 mo's reserves for PITI on all our rentals.

Tim, do you agree that the local lenders in NWW will look at rental income x 75% = net profit? We've always taken the tax returns, added back in depreciation, and used that number for profit on rentals. If they'd take a flat 25% as income, that would help our DTI for the proposed HOA fees.

Also, based on our situation, what do you think the lenders are going to do this year? Have the rules changed from last year; that is, are they still looking for 25% down based upon our situation, or are we good to bank on a higher sale price with 20% down? Lender guidelines seem to be a lot different in NJ than PA, but you guys have the beach too :-)

Before we sign up with a Realtor and a lender, we're trying to figure this all out on the front end (as our accountant is preparing our 2010 return) so we have our ducks in a row when it's time to look for a property. Thanks again everyone for your responses.

0 votes Thank Flag Link Sat Jan 22, 2011
You're probably making a mistake to buy a condo as an income property (at least using the strategy that you discussed). More often than not, your mortgage and expenses (including taxes, insurance, any condo association and/or HOA fees, any repairs [the ones not covered by the condo association], parking, etc) will exceed the amount that you'd collect in rent. Plus, any special assessments would throw your numbers even further off.

If you were to do a lease-option (or lease-purchase) instead of a pure rental (assuming you structured the transaction properly), then you should be able to get a decent positive pre-tax cash-flow (PTCF). You could also acquire and flip this property with seller financing, and receive positive PTCF.

The way that a lender will treat the rental income will depend upon whether you opt for conventional or commercial financing. Your personal DTI is less important to commercial lenders, but the DCR (which is kind of like a DTI for the target property) is extremely important to them. They want to know that you have enough to pay your mortgage and expenses, and that you have some income left over to pay yourself. If you intend to buy more income properties, then you might want to consider getting a commercial loan, or at least talking with a few commercial lenders before you choose the lender with whom you'll do the loan.
0 votes Thank Flag Link Sat Jan 22, 2011

Yes it will be added to your DTI also be carefull Fannie Mae does say 10 properties in your portolio but I can tell you this because I just a and investor buyer who had five and he had scores in the mid 800's and they drove him around the block a few times and it was a single family home in Wildwood that he purchased and tow of his investment properties were is and LLC there was still issues and his DTI was only 21. Just want to give you FYI it is even worse with Condo's must make sure that the condo Assocation is in good shape and not to many REO's or Short Sales....You need someone who knows what the banks are going to want before it happens... We closed it just was a little more work for the buyer and me...But that's my Job

Tim Robbins

Exclusive Buyers Broker
Better Homes Realty
Serving Cape May County for 20 years

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0 votes Thank Flag Link Sat Jan 22, 2011
Hi Stacy,

I'm a Realtor at Atlantis Realty in Wildwood Crest. I was born and raised here and am very familiar with the inventory in the Crest. Let me know how I can assist in your search for a condo here at the shore. Be well.

Robert Snyder - GRI, ABR, RSPS, CREN, SFR
Realtor - Associate
Atlantis Realty
609.602.9334 - cell
0 votes Thank Flag Link Sat Jan 22, 2011

Robin below gives some very good answers in which I agree with. I just wanted to add one more specific issue. Many lenders won't go above a total of 4 to 5 properties, including your primary property. Yes, Fannie Mae allows you to go up to a total of 10 properties and we can actually allow this ourselves. Now sure if you have any other investment properties, hence why I bring this up. Just be careful when speaking to any loan officer, because such problems are sometimes not found out until near the end, then the deal could be killed.


Area Manager
Cell : 609-440-5133 e-mail
0 votes Thank Flag Link Sat Jan 22, 2011
Self employed isn't what matters, it is what you show as income on your return, the fact that you have been self employed for 2 years, your income is not declining, and you can give a profit and loss for 2010, or a new return, showing the income that you need to qualify. The answer to the main part of your question is yes, the condo fee will be included in your DTI. Also, before anyone gives you an answer to the second part of your question, if you have other investment properties, you can count 75% of the rent. There are some lenders that will not let you count rental income if you are a first time investor.
0 votes Thank Flag Link Sat Jan 22, 2011
HOA will be configured into what you can qualify for a purchase. Property can't be configured into income for fact you have not purchased the condo UNDETERMINED what you net profit would be

Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
0 votes Thank Flag Link Sat Jan 22, 2011
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