Navigating high DTI: Entrepreneur's $600,000 cash-out refinance victory
By Colin McMahon
May 31, 2023 • 3 min read
In the world of entrepreneurship, business write-offs certainly have their perks. They can significantly lower your tax liabilities and reflect smart business acumen. However, when it comes to securing a loan, these write-offs can cast a different light. Traditional lenders often look at your income as reported on your tax returns, and if that number is lower than your actual earnings due to deductions, it might make them more apprehensive to lend. But here at Milo, we're not your typical lender.
One of my repeat clients, a seasoned entrepreneur with an expert grasp on his business financials, found himself in such a situation. His keen understanding of business write-offs had resulted in lower earnings reported on his tax returns, which raised eyebrows for conventional lenders. He was involved in several crypto-related ventures and owned multiple rental properties, but the traditional metrics failed to capture his true financial strength.
The property in focus? A stunning single-family home in Sarasota, Florida, valued at $4 million. The goal was to hatch a cash-out refinance plan that would enable him to purchase another investment property. However, his relatively high debt-to-income (DTI) ratio had been a roadblock with other lenders.
For those unfamiliar with the term, DTI is a key metric lenders use to measure your ability to manage monthly debt payments against your gross monthly income. Ideally, this ratio should be no more than 43%, with a preference towards numbers below 35%. Under traditional measures, our client’s DTI ratio stood at a whopping 70%.
Enter Milo's bank statement program. By considering his regular deposits instead of his tax return income, we could reinterpret his financial standing. This unconventional yet effective approach painted a more accurate picture of his income and brought his DTI ratio down to a comfortable 45%.
Bank statement loans provide a lifeline for self-employed borrowers whose tax returns might not do justice to their actual income. They consider your income as reflected by your bank deposits, enabling you to qualify for a home loan even when the tax returns present a different story.
His strong equity position in the Sarasota property combined with his regular bank deposits allowed us to tailor a bank statement loan fitting his unique needs. Though he had substantial crypto reserves, they were not needed for this particular loan. Nevertheless, knowing that he could leverage them in the future added an extra layer of confidence and security.
The result? A refined refinancing plan that provided approximately $600,000 cash-out based on a bank statement calculation.
Every case at Milo reaffirms that each client's financial narrative is unique, and it's this understanding that allows us to steer our clients toward their financial goals, even when conventional paths seem blocked.
The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.
Loan Consultant Sales Team Lead
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