DTI and rental income

I have a pretty simple question. If I own a single home, and would like to move into another and rent the one I am in, is there any way to count the future rental income on my DTI? Or will that only work when I am theoretically moving from home 2 to 3 and then I can count the income from home #1?

Jon Holdman

Real Estate Investor · Wheat Ridge, Colorado

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Dec 28 '11, 09:49 PM

What you will bump into is a problem caused by people who moved to a cheaper home, claimed the first one would be a rental, and then let it fall into foreclosure. Many lenders will require you have enough income to support both loans, without considering rental income. If you search around, you may find one who will let you count the rent. The will usually consider "net rental income" to be 75% of the rent less your PITI payment. Once you have two years tax returns with the rental income, most lenders will count it.

Jon Holdman, Flying Phoenix LLC

Jeff N.

SFR Investor · Virginia Beach, Virginia

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Dec 29 '11, 04:12 AM

Joe, I just financed a 30yr investment property using a conventional loan (FM/FM) and the requirements were exactely as Jon stated. For income to count, you must show records of 2yrs of rental history for the property and they will count 75% less PITI&HOA. They will not consider future expected rent as you stated. You can google fannie mae / freddie mac guidlines to get more details, if that's the route you are going.

Ophelia Nicholson

Rehabber · Silver Spring, Maryland

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Dec 29 '11, 04:29 AM

Hey Joe,
I work for a big bank and Jon is right typically you are expected to be able to carry both mortgages however the only way we will count the rental income is if you are moving to a bigger house and if you have 30% equity in the house you currently own- we would do a full appraisal on the one you own and the one you are buying.

Joe Edwards-Hoff

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Dec 29 '11, 08:27 AM

Could you define "bigger"? Sq ft? # of B&B? Value? Just curious...

Jon Holdman

Real Estate Investor · Wheat Ridge, Colorado

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Dec 29 '11, 10:04 AM

Higher priced.

Jon Holdman, Flying Phoenix LLC

John Jackson

Real Estate Investor · North Richland Hills, Texas

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Dec 29 '11, 10:48 AM

When we do a lease option on a house, the seller can normally qualify for the next house based on the lease we've drafted, and using 70% of the income, but some are still at 75%, as Jon stated. Although I have heard of SOME lenders requiring 2 years of rental proof on House #1, I have not run into it.

Joe Edwards-Hoff

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Dec 30 '11, 12:43 PM

Alright, well thanks for all of the good information. Right now my ambitions are not gigantic. I hope to accumulate a few properties to buy and hold and rent out. I am in the process of buying my first home to move into. I've got my PITI set a little bit below what the rental value of the house is. More importantly, my wife has a washer and dryer. ;o)

Anyway, I'm already thinking about my next move. I hope to perhaps buy one more temporary house after this one and then finally move into a place to settle down for good. To make room for more kids, I plan to look for a 4 bed house for my next purchase, though still one that meets my criteria for a good rental. I guess between now and then I just need to get my DTI ratio lined up so that I could carry both mortgages. Which won't be hard since my wife will be done with school soon.

Thanks again!