Why Debt-to-Income Ratios Hurt Rental Home Investors
If you go through a conventional lender – like a bank sponsored by Freddie Mac – one of the most common questions you’ll need to answer before you qualify for a loan is, “What is your debt-to-income-ratio?”
Simply put, a debt-to-income ratio is exactly what it sound like. It’s the total of the debt you owe every month compared to the total of your monthly income.
So, let’s say that every month, you owe:
- $800 for your mortgage
- $300 for your car payment
- $250 for your home and car insurance
- $100 for your phone bill
- $50 for Internet
That’s $1,500 in total debt.
If you make $5,000 a month, your debt-to-income ratio would be 30% (debt divided by income).
That’s not bad as the maximum ratio you can have and still take out a qualified mortgage is 43%.
Of course, if you own multiple rental properties, this low of a ratio is nearly impossible because of the subsequent multiple mortgages. Even though you have plenty of assets that bring you a monthly income, most banks won’t even consider providing you with a loan.
Why No-Ratio Loans for Investment Properties Are Essential
Chances are you already know most of this. You’ve tried multiple banks in the past and have been politely declined.
Although there are some complicated workarounds you could consider in order to secure the financing you need, the easiest path forward is no-ratio loans for investment properties.
Once again, the name is fairly self-explanatory. These are loans that you can qualify for without providing any debt-to-income ratio, whatsoever.
Instead, the qualification process for these types of loans is much simpler. Lenders only look at two factors:
- The property you want to buy
- The cashflow your portfolio is producing
As long as both point to a sound loan, you’ll be granted one.
The advantages of no-ratio loans for investment properties are many.
First and foremost, investors aren’t being punished for successfully building a large portfolio, simply because “on paper” it leads to a higher debt-to-income ratio. That’s why, for many successful investors, it’s actually the only option.
Second, the streamlined process can mean a much quicker turnaround time on the loan. For investors who know they need to move fast in order to secure a promising property, taking the traditional route of going through a conventional lender can be extremely frustrating. Sometimes, it comes at the price of missing out on the property.
You don’t even need to submit your personal or business tax returns.
Third, despite all of these advantages, rates are still very competitive. You don’t have to worry that qualifying for this kind of loan is going to cost you elsewhere. Given just how many people make a living by building rental-property portfolios, it should come as no surprise that the competition to lend to these individuals has created enough competition to effectively keep rates low.
The Easiest Way to Secure No-Ratio Loans for Investment Properties
For investors who are looking to build a portfolio of properties, it’s hard to think of a better lending option than the one we just covered.
If you’d like to join those who are leveraging no-ratio loans for investment properties, we can help. By working with Rental Home Financing, you won’t be burdened by the kinds of red tape that you’ll find with a traditional lender or local bank sponsored by Fannie Mae or Freddie Mac, or some government agency.
Whereas they always demand to see income ratios and expense ratios in order to qualify buyers, our process is much simpler. We look at the only metrics that really matter: credit scores from the sponsors, the value of the real estate in question and the location.
Apply today and you’ll soon be using no-ratio loans for investment properties.