How does a rental mortgage and rental income affect your debt ratio?
Monday, June 7th, 2010 at
1:46 pm
David E asked:
For instance:
Is it $1500 rental income – $1000 rental mortgage = $500 added to your income only
For instance:
Is it $1500 rental income – $1000 rental mortgage = $500 added to your income only
or
Is $1500 of rental income added to your total income and $1000 added to your total debt and they are considered separate of each other in the ratio?
Jean
Tagged with: Debt Ratio • Mortgage • Rental Income
Filed under: Personal Finance
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Richard
I am a Mortgage 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 mortgage payment includes taxes and insurances
Laura
Underwriters count 75% of the rental income against your rental mortgage 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 true of MOST lender/programs, but some (rarely) have different protocols depending on the loan program. Get qualified with a mortgage professional who can work the income/ratios for you that exactly 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 larger, nicer, lower payment, etc. My office closed several of these move up/lower payment purchases in the last 2 months.
Christine
Golferwh is correct 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.
Shannon
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 mortgage 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 mortgage payment (and that MUST include taxes and insurance or the mortgage 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 history of rental incomes from OTHER properties.
Angela
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/gross income +- gain/loss from rental property)
I would also emphasize the importance of having the two year history 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.
Good luck.
Leo
seriously?
Jane
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