Bank wont count rental income profit as income for loan qualif??

7 Replies

Not sure if this is the right forum section or not but since I'm a total newbie I thought it belonged here. 

Knowing where you want to go begins with knowing where you are, and with that in mind I reached out to a national bank just to see what kind of mortgage I could qualify for and how I would best improve my current situation in case I needed to use conventional financing.

My credit score is mid-700s, about $15k in consumer debt (which is coming down). The main problem for the bank is that my base income is low-ish (I'm in a salary+commission job) and I dont have 2 yrs of history in this job for them to go on. 

Here is the part that puzzled me...when the bank asked me what I want to do with my current home I own I told him that I intend to rent it and move into the next home I buy. So it seemed like he was calculating whether my base income can satisfy two mortgages. Is that normal? I understand that there is no guarantee that the house would rent at all, but why wouldn't he include anything about having the potential for rental income into my calculation? 

I realize a lot of you are probably smacking your foreheads at what I assume is probably a "duh" question, but this is where I am and any advice or counsel would be greatly appreciated. 

Thanks!

Generally, I think you need to show proof of rental income coming in and probably a signed lease for them to count it. I believe that is normal.

@Brett Rhine The only obstacle I see to conventional lending is having less than 2 years in your current position.  Lenders will normally consider 75% of the fair market rent as your income for purposes of qualifying for the loan.

An alternative to consider is a "portfolio loan" with a local lender like a credit union or community bank.  These loans are not sold on the secondary market, so they tend to have fewer restrictions.

I believe there is also a minimum equity required in your current home, to be able to count the anticipated income, or even existing income from it.

Can’t tag Chris Mason on the phone.

 @Nicolas Sakata :

Hmm, I actually do rent my spare rooms right now. The mortgage is $1020, the rents coming in are $1025. And if I moved out I could probably rent the whole place to one family for about $1500. 

Think that might change my situation in the bank's eyes? What would I need to show them to prove I've got that money coming in?

Originally posted by @Charlie MacPherson :

@Brett Rhine Lenders will normally consider 75% of the fair market rent as your income for purposes of qualifying for the loan.

An alternative to consider is a "portfolio loan" with a local lender like a credit union or community bank.  These loans are not sold on the secondary market, so they tend to have fewer restrictions.

 Curious that he didn't mention my would-be rental income at all, then. No?

@Brett Rhine You mentioned that you're renting out rooms. It could be that renting out part of an SFR doesn't qualify because it's not a legal rental.

I'd run that question by the lender.

You  have to have taxes to prove rental income ,and show a lease .

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