Author Topic: refiance question  (Read 386 times)

cooking

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refiance question
« on: July 10, 2020, 07:45:35 PM »
My son is trying to refi the mortgage on his personal residence while rates are low.  The mortgage broker brought this up as an obstacle as far as his debt to income ratio: he owns another house which he has rents out.  The thing is, the rental house deed is in my son's name but the mortgage on it is NOT.  The mortgage broker claims that the mortgage amount on the rental would of course not count against my son, but the property taxes and insurance on the rental would.  I find this confusing, as property taxes and insurance are not generally considered personal debts.  The only type of analogies that occur to me are things like if you owned title to a yacht and weren't responsible for paying any amount owed on it, would they say that you must be paying out a lot for things like maintenance, fuel and storage on the yacht so we're going to count that as debt you must pay on.

Does anyone know general underwriting standards well enough to tell me whether or not this is standard procedure?  My son's income qualifies him for the refi unless he is required to include the taxes and insurance for the rental house as debt.  Also, if this makes the situation any clearer, he claims the income from the rental on his tax return, but the depreciation and other expenses on the rental compared to the low amount he collects as rent (house in poor condition) makes it something of a wash.  So he's not asking the potential new lender to include any of the rental income to meet the ratios.

Can someone explain to me what can legitimately be counted as debt on the ratio?

Chiron

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Re: refiance question
« Reply #1 on: July 14, 2020, 12:47:00 PM »
This is standard.  I've seen some underwriters ignore it if it's in the name of an LLC.  But if in personal name, taxes and insurance will be included in monthly obligations for rental homes, second homes, and primary home regardless of whether the income from the rental is included on the income side. 

August26th

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Re: refiance question
« Reply #2 on: July 14, 2020, 01:13:20 PM »
The underwriter “should” be doing a standard investment property analysis. It makes no sense to simply count the taxes and insurance against him without also giving him the benefit of the rents, adding back in depreciation, etc.  I don’t think the underwriter is doing it correctly, or at the very least they’re being waaaay too conservative.

I’m including a screenshot of the worksheet that should be used to calculate the investment property income.


cooking

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Re: refiance question
« Reply #3 on: July 17, 2020, 10:32:42 AM »
Thank you both for taking the time to answer.  Son is still in process on the refi, will post here as it progresses.