House Hack DTI Question - Can you count rental income?

19 Replies

Hi all,  I can't seem to find any definitive answers to this question. I'm looking to purchase my first property with the multi-family (2-4) house hacking strategy (live-in, low money down). Based on my income and a 40% debt to income ratio, I can qualify for about $250,000 in a low money down loan. 

In Richmond, VA, the going rate for most multi is at least $350K. Is it possible that a lender would consider the income from the other units as part of my debt to income?

I have no prior landlord experience and I've seen that most financing requires a 2-year history but I've also seen a few other opinions, so just looking to get something more definitive. 

Thanks in advance!

typically yes. If you could find a local bank who sell notes to Fannie Mae banks or if you can find one that has in house those are the more flexible ones that will work with you and count that toward the debt.

Most traditional lenders will credit you at 75% of your gross rents, but only after you have two years' experience. Your DTI probably isn't too far off from being able to float that for a while. Have you met with a lender? Their goal is to close a loan with you- I'd sit down with someone you like and trust and go over your situation, they'll likely be able to give you specific steps you can take to get approved. Maybe you have a car payment that could go away, either with a pay off or by selling it and downgrading? A credit card you can pay off? There are lots of simple ways to lower your DTI, a good lender will help you get there.

Originally posted by @Corby Goade :

Most traditional lenders will credit you at 75% of your gross rents, but only after you have two years' experience. Your DTI probably isn't too far off from being able to float that for a while. Have you met with a lender? Their goal is to close a loan with you- I'd sit down with someone you like and trust and go over your situation, they'll likely be able to give you specific steps you can take to get approved. Maybe you have a car payment that could go away, either with a pay off or by selling it and downgrading? A credit card you can pay off? There are lots of simple ways to lower your DTI, a good lender will help you get there.

I haven't met with a lender yet. Sounds like that needs to be my first step, I was just trying to get a better understanding before I start working with them so I know what products might be out there for new investors. What does it mean to "float"? Unfortunately (for this situation) I don't have any debt that I can pay off, but those would have been good thoughts.

Originally posted by @Harjeet Bhatti :

@Eddie Gonnella FHA and Home Possible both will count your rental income in your loan scenario.

Is that usually about 75% of expected rent? Do you have thoughts on the differences between those two products? Is it mostly just Home Possible has a higher interest rate but you can get rid of PMI at some point? That's what I've heard.

@Eddie Gonnella  

four unit buildings but they must pass the self-sufficiency test. The self sufficiency test states that the maximum mortgage is limited so that the ratio of the monthly mortgage payment, divided by the monthly net rental income, does not exceed 100 percent.

@Sam Shueh Hi Sam, thanks for the comment. This is different than what others have said in this thread. Do you know why others would say you can count it? Just want to make sure I have my situation straight. 

Do you have two years of rent collected from your rental that is reported to IRS with lease with you as landlord.  That was also conveyed by others.

I had a mortgage broker a year ago get me qualified with counting the signed lease on an owner occupied duplex. The previous tenant was staying and I got to count 75% of rents towards offsetting DTI. Call around, it is possible.

@Sam Shueh

I do not have that as I am just getting started. I have seen that you do and that you do not need 2 years in this thread and in others. I don't know the answer but I was looking to find out what is possible. I appreciate the help! 

@Eddie Gonnella they’ll count rent from units you don’t occupy. Example if you buy a duplex with 3 bedrooms in each side, and get 2 roommates for your unit, and rent out the other unit. They won’t count rent from your roommates, only the other unit.

Originally posted by @Eddie Gonnella :

@Sam Shueh Hi Sam, thanks for the comment. This is different than what others have said in this thread. Do you know why others would say you can count it? Just want to make sure I have my situation straight. 

 Overlays are why there is conflicting information. If you want a quick validation of this, call 1-800-Quicken and say you want an FHA loan on a triplex. They will tell you that "FHA doesn't allow for triplexes," they will probably NOT say the truth which is that they have an internal overlay stating that they (that particular lender) elect not to do FHA loans on triplexes.

Another source of conflicting information in threads like this is that folks don't always realize that 6 months ago a lender told them something that was in fact a Fannie Mae guideline, but you are inquiring about FHA or Freddie Mac loans. Each funding source has its own 1000 pages of guidelines. Someone above mentioned the "requirement" that you have signed leases to count rental income, which was probably true for that person when they applied to refinance a property they recently purchased with a Fannie loan. But you're looking to buy (not refi) with either Freddie Mac Home Possible or with FHA, either way the Fannie Mae Refinance requirement will not be applicable to your exact scenario because a) this isn't a refi and b) it will not be a Fannie loan.

Go to your local REIA meetup and ask who does everyone's loans. There will be like 1 or 2 specific people dominating this niche in the region (Hi, SF Bay Area), generally the person who got it done when 5 other lenders said "no," and generally because they do not have (many) overlays.

You do not need two years of rental income to count the rental income from the subject property. That's a very very common overlay. But they will only count rent from units, not "extra" bedrooms in the unit you will occupy. That's not an overlay. 

@Harjeet Bhatti is spot on about the FHA self-sufficiency test, which can't be conducted until the appraisal report comes back. It's the reason that many (not all) listing agents will simply throw your FHA offer in the trash (this is an issue unto itself).

@Chris Mason Thank you! That is extremely helpful and I appreciate the link to the overlays definition. That also clears up why there is so much contradicting information out there.

Sounds like with persistence it is possible to find the right loan set up. 

I've definitely got what I need to continue on with my real estate search! Thanks, everyone.