All Topics / Help Needed! / Debt to income ratio

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  • Profile photo of jsoohoojsoohoo
    Member
    @jsoohoo
    Join Date: 2010
    Post Count: 26

    Hi there,

    I am a first timer to property investing and I wish to know if rental income gets included in the income part of the Debt to Income equation (Debt/Income)?

    Is this correct?

    DTI = Monthly Total debts +Liabilities/ Total income (salary + rental income?)

    Also, this is probably an obvious question so please bare with me, can we use the deposit (20% of a property) from property #1 and then later down the track say the value of the property #1 has gone up by 30k within a year, then use this as a deposit for property #2?  In other words, can a deposit that was used originally for my first investment be then drawn out using say a LOC to fund my deposit for my second investment?

    Profile photo of number 8number 8
    Participant
    @number-8
    Join Date: 2010
    Post Count: 333

    Debt to service ratio is the common name = Total financial commitments / Gross Income x 100 = Lenders like to see desired max. at 50%. YES you are correct.

    As a first timer these statistics are a little irrelevant, learn some fundamentals – What you are describing above is called equity release, in principal your thoughts above are correct.  (fundamentally you are not using the same deposit but releasing the equity – capital growth).  There are many skills and tricks you can learn, get it right and you get to retire young. Get it wrong and pay off your home at 50-60 and retire later like the rest of Australia. http://www.birchcorp.com.au

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Also bear in mind that most loans these days are also Credit scored in additional to using a numeral based calculation and the combination of the 2 will produce the lending result.

    Equity release is a common strategy and one i have used effectively to get where i have today.

    Remember Rome wasnt built in a day so a skillfull Mortgage Broker is one who can work with you and show you how to best utlise both your income and equity to achieve the desired goal.

    Richard Taylor | Australia's leading private lender

    Profile photo of jsoohoojsoohoo
    Member
    @jsoohoo
    Join Date: 2010
    Post Count: 26

    Ok so let me clarify this with an example, say a place was bought for $320000 but a year later it gets appraised at $350000. If I put in $64,000 (320,000 x 20%) deposit on the home, to calculate the deposit after the appraisal, my deposit will now become $70,000 (350,000 x 20%)? And this deposit of $70,000 can now be “released” and used as a deposit for my second property?

    Profile photo of jsoohoojsoohoo
    Member
    @jsoohoo
    Join Date: 2010
    Post Count: 26

    Ok so let me clarify this with an example, say a place was bought for $320000 but a year later it gets appraised at $350000. If I put in $64,000 (320,000 x 20%) deposit on the home, to calculate the deposit after the appraisal, my deposit will now become $70,000 (350,000 x 20%)? And this deposit of $70,000 can now be “released” and used as a deposit for my second property?

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Doesnt quiet work like that.

    Dont forget you can only usually access a maximum of 90% of the current valuation so in your example $350K x 90%
    = 315,000 less existing loan of $256,000 = Access to $59000.

    Richard Taylor | Australia's leading private lender

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