so in this video we're going to show you how to calculate the debt to income
ratio for a co-op in New York city so if you're a buyer or if you're an agent
working with a buyer or if you're a seller or if you are a listing agent
this video will definitely help you I'm Nick at Hauseit check us out hauseit.com
we can save you money if you're buying selling or renting in New York City
learn how by visiting our website hauseit.com and do also check out our
buyer closing cost calculator which is available on our website as well so
let's go ahead and get started so what we're looking at here is the rebny
financial statement if you're not already familiar with this it's
basically one of the core requirements of an offer for a co-op in New York City
rebny is a fancy acronym for Real Estate Board of New York they don't really have
claim to this form it's a basic financial statement but people call it a
revenue financial statement because rebny is the predominant broker trade
group here in New York city so what we have here is a fictitious
financial statement and we're just going to go through it and kind of calculate
the DTI and do the usual checks that we would do if we were working with a buyer
submitting an offer or if we were a listing agent
we were checking an offer on behalf of our seller so the first thing you want
to do is just go ahead and focus on the income section now remember your debt to
income ratio has nothing to do directly with your assets and your liabilities
obviously there's an indirect implication for you know liability
payments like student loan payment and such but the point is don't don't look
at this section immediately to focus on debt to income ratio we want to just go
down into this section over here so the first thing we want to do is just
understand the income base salary is pretty vanilla pretty straightforward
there's usually not too much we have to check on that
but other things like bonuses and commissions this is a field that we may
want to just double check with the buyer and just get a sense for how sticky this
is ideally there's a two-year history of this income Co-op boards like to see
that stability but if this is like an anticipated earnings or if it's fully
you know fictitious or maybe it's partially based on last year with some
sort of increase that you expect but is not written down then you may want to
discuss that but for this particular exercise we can
just go ahead and include this as income now dividends and interest income are
also typically legitimate to add however you know if you're right on the border
and it's a super strict building I would be a little careful with this just
because presumably um you're going to have to liquidate in
this case some of your yielding stocks or cash or whatever so it might actually
you know it's going to reduce that so A really smart board member would notice
that and if they're being really sticky tricky rather with their math then that
might be an issue but in this case usually you can just include it real
estate income this is an interesting one because it's not as common for somebody
buying a co-op especially a first-time buyer to have an existing property most
of our clients are you know renting in the city before they decide to buy
either a co-op or a house or even a condo so in this case we do want to be a
little careful with that we would basically want to add this to the income
but then also make sure we have corresponding entries into the expense
items for this particular purchaser and then for other income this is where
you know red flags start to appear we really need to understand what this is
because a lot of the times a purchaser may put something in here that's just
really not uh going to actually count when it comes to the board application
so for example if this 11 000 is you know projected income from a side hustle
um or you know some sort of esoteric crypto type of thing you probably should
haircut it to zero because the co-op board probably will as well and
similarly let's say 5000 maybe this is some sort of parental
contribution maybe towards student loans or something like that typically again
it's hairy it's complicated Co-op boards won't really allow that now that being
said we have done deals before where we have a you know parent basically buying
for a child and the child's getting a stipend every month and we've documented
it copiously submitted to the board and got approval but that's really more of
an exception rather than the norm so in this particular analysis like if I was a
listing agent and you know my duty was to my seller I would when calculating
this I would basically remove these two items for the reasons we mentioned
so in terms of income that leaves us with having to basically sum all of this
up so again legitimate base income legitimate bonus to your history ideally
from your job legitimate dividends from your your
liquid assets and your real estate income your gross real estate income
from that property that you have let's just say it's a rental for now and let's
say therefore you don't live there so the total here is 357
000 so the monthly income will be that divided by 12 of course
and that gets us to 29 750 a month for their income
and then let's go ahead and look at expenses so the first thing you want to
do especially as a you know buyer's agent or a listing agent is you want to
make sure that the projected expenses pertaining to the unit are actually
correct based on the specific property based on your offer price and so forth
so if we take a hypothetical example of this property here on the screen
uh we can first of all see what the taxes and common charges are
and I actually added added these up and divided it by
two and that's typically what you should do so if you sum that up it's 7.25 and
the sum of this is 7.25 so that's correct based on the specific property
we're going to submit an offer on and then the apartment financing
we use the calculator here on the site assuming full ask we just took the
default interest rate but if you have a pre-approval letter and it shows an
interest rate make sure you include whatever it is that you have on your
documentation and we have a mortgage payment of 3439
and then what we did was we basically divided that by two and put half in one
column for one applicant and half in the other applicant these people are buying
the property together so that's what we have to do in terms of
projected expenses for the property they're buying obviously you don't
include your current rent since presumably you're disposing of that
lease and you're not going to have that moving forward so this is projected
and then unique to this particular Revenue statement as we mentioned the
buyer has an existing property and so for that one just to clarify other
mortgages let's just assume that this is what the buyer confirmed to be their
monthly payment their mortgage payment and then this property let's assume also
it's a house so there's no common charges it's not a co-op there's no
maintenance but there are taxes and let's just assume that the monthly taxes
are 300 a month so a lot of the times there might be a schedule and this
information will be on a schedule but usually that the buyer might put net
rental income and it won't actually give us the specific information we need to
surgically calculate the debt to income ratio so now that we've done that just
to summarize we have the combined projected carrying costs for the
property we're submitting an offer on split equally down the middle for both
of the applicants and then we also have the mortgage of 850 that's the existing
properties gonna make it a rental property now and then taxes of 300 so
just to put it in here I can put put that there but also feel free to modify
this as well so oftentimes what we do to make it super clear especially if a
buyer has multiple rental properties is we can actually label this so you can
change this you can say you know rental property
mortgage rental property One Mortgage
and then perhaps here rental property One taxes so feel free to modify this
and there are no auto loans in this case so we can just rework this so that it's
you know very clear and remove that
and so that that makes it a lot cleaner so if we sum all this up it brings us to
5314. let's go ahead and put that there five
three one four and
let's make it look the same there we go and then let's just calculate the debt
to income ratio so it's it's as simple as taking your expenses and dividing it
by your income
so it looks like it is 18 percent based on this calculation
now that being said we do also at this point want to double
check assets and liabilities why because
oftentimes buyers don't necessarily include the associated payments
especially on the liability side for entries here and in this case we
actually do have this issue so for example
real estate mortgages that's solved based on the payment we secured here but
what about credit card loans it looks like it's a large balance and generally
speaking if you pay off your credit card balance every month you don't put
anything here for a co-op but this is a large balance so it looks like this is
being carried over months as a result you know appears on your credit report
and you know the co-op's going to want to know what the monthly payment is the
minimum monthly payment as that does impact your debt to income ratio because
it is a recurring liability payment so in this case we're just going to make
this up and just say that the minimum payment is 250. so in the expenses we'll
just put credit card minimum payments and put their 250 and then the other
thing we noticed here was that there was this line item for other debts when
there was no corresponding entry in projected expenses so naturally we did
ask the buyer and the other debts were basically student loans so we had to ask
you know what's the student loan payment we got that it's 300 so let's go ahead
and put this in here student loan
payments of 300. so just to recap what we've done here we
verified that things in the liability section also had corresponding entries
and projected expenses this one real estate mortgages we got that one here
credit card loans we got this one here and other debts which turned out to be
student loans we have that here
so if we basically add all of the stuff stuff up again it actually increases our
DTI from or rather our expense is expenses first from 5314 to 5864.
and therefore that brings our DTI up to 20 which for a co-op is quite good you
know typically a co-op in New York City 25% to 30% if a building doesn't State
anything you probably better be below 25% to be prudent other times they might
officially State you know 30% or something like that but a lot of the
times it's just holistic so you know if your debt to income ratio is you know
borderline not obviously egregiously above but borderline and you have huge
amounts of post-closing liquidity which is the other metric for a co-op then you
know you'll typically be accepted but you know there's no guarantees in this
business with co-ops and that's why it's very important to be very familiar with
your debt to income ratio understand how this is calculated understand you know
what a listing agent is going to do to it because that's what a co-op board
will do when they dissect your board application after you're in contract so
we hope you found this to be helpful let us know below if you have any questions
or comments and remember we can save you money on your purchase through a Buyer
Closing Credit visit our website to learn more and do check out our closing
cost calculators the link is below in the description I'm Nick at Hauseit and
we'll see you on the next one