Property two is usually where the DTI ladder breaks, well before property three

Run the ladder out on paper for a four property sequence and the failure point often isn't where an investor expects. Take property one at 340k, 3.5 percent down FHA, PITI plus MIP at 2,650. Market rent 2,450. Property two target: 385k, 5 percent conventional, PITI around 2,900. Say income is 168k gross, 14,000 a month, no other debt. At a 45 percent back end that gives 6,300 of capacity. Property one at 2,650 with 75 percent of 2,450 credited back is a net 812 hit. Property two at 2,900 puts the borrower at 3,712, so it clears easily. Most people expect trouble at property three. Except property one's rental income often can't be used at all until it's on a filed return with two years of history, per most lender overlays. Without the credit, property one is a straight 2,650 plus 2,900, which is 5,550 of 6,300. Property three is dead on arrival before property two is even purchased. A minority of lenders will take a signed lease plus proof of the security deposit clearing, with the same 75 percent factor, which is an enormous difference in outcome based purely on overlay. The useful question for anyone mapping this: is there a reliable way to identify the lease-accepting lenders before three weeks into an application? And does MIP on an FHA loan being permanent for the life of the loan argue for refinancing to conventional the moment there's 20 percent equity, or does resetting the amortization and paying closing costs on a note that size eat the benefit? Usually it comes down to how many years remain on the note versus the rate spread available at refinance.