How does a rental mortgage and rental income affect your debt ratio?
March 11th, 2010 | 
Author: Fοr instance:
Iѕ іt $1500 rental income – $1000 rental finance = $500 extra tο уουr income οnlу
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Iѕ $1500 οf rental income extra tο уουr total income аnd $1000 extra tο уουr total debt аnd thеу аrе considered separate οf each οthеr іn thе ratio?
Posted in Mortgage FAQ
I am a Finance banker in TN & KY—no not at all only 75% is use so 1500 x.75= 1125-1100= 125 and that is only if the finance payment includes taxes and insurances
Underwriters count 75% of the rental income against your rental finance payment. This is to account for vacancy losses.
Therefore $1500 lease X 75% = $1125 – $1000 (PITI+MI) = $125 is POSITIVE net rent. This rental HELPs you qualify.
This is right of MOST lender/programs, but some (rarely) have different protocols depending on the loan program. Get qualified with a finance qualified who can work the income/ratios for you that just so fits your scenario.
Best of luck!
PS. You don’t need to have been a landlord for two years to use your (soon to be) former residence as a rental. You must qualify with BOTH house payments, show a lease (12 mos with copy of the deposit check from tenant) and be sure the house you are moving into is better, nicer, lower payment, etc. My office closed numerous of these go up/lower payment buys in the last 2 months.
Golferwh is right with one exception. You have to be able to prove that you have been a landlord for 2 years (with tax returns that show rental income) before you can use any of it.
Depends on where the rental income is coming from.
Fannie Mae/Freddie Mac standard underwriting requirements will automatically deduct 25% from the rental income along with the finance payment.
You also must show tax records that show the reported rental income that you are claiming on the properties…that keeps you from inflating it.
You must also show a signed lease that has a minimum 1year duration.
In other words, if you show $1500 rental income on your tax records, deduct 25%, deduct the $1,000 finance payment (and that MUST include taxes and insurance or the finance company will make you provide it and deduct more) and what is left is your income.
You CANNOT use rental income from the subject property to qualify for the loan…only a two year description of rental incomes from OTHER properties.
I would only add to this discussion that if you have filed a schedule E on the subject property and you are showing losses, they may add back depreciation and divide by 12. Depending on whether you are showing a loss or a gain after adding back the depreciation it would either add to your be subtracted from your other income before the total debt ratio is calculated (e.g. your housing expenses + all other monthly debt payments/yucky income +- gain/loss from rental property)
I would also emphasize the importance of having the two year description of managing rental property to avoid having the full payment on the rental property thrown in to the ratio calculation with out the use of the rental income for agency programs. That is usually a deal killer.
Excellent luck.
seriously?
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