Qualifying rental income towards DTI

7 Replies

I am buying a SFH as a primary residence and will rent my current condo. I have never had rental income before so my income taxes do not show rental income. At 75% my rental condo still leaves a positive net income. Can I use that net rental income as qualifying income towards the DTI ratio of the new purchase?

more likely than not the underwriter will not allow it. The one caveat is that if you have an executed lease you may be able to wash the payment but you won't get any positive credit for the rental income.

@Joe Val  If you have a lease on the condo and verification of security deposit and 1st month's rent, then 75% of the income can be counted depending on the type of loan you are getting. Most conventional loans allow it. If you are getting a FHA or VA loan, then you will not be able to use the income.

Upen Patel
Mortgage Banker
National Lender, Federal NMLS# 1374243
Upen Patel, Lender in (#National Lender NMLS 1374243)
(571) 331-5161
If they underwrite through Fannie Mae, they can/will count 75% of the income stated on the lease or appraisal whichever is lower. If they underwrite through Freddie Mac, the income has to be on your tax returns for 2 years before its counted as income. Most loan officers will tell you they can't count it and will count it against you. Loan officers are sometimes "check box monkeys". (No offense!) So find yourself an educated loan officer and you won't have an issues.
Originally posted by @Justin Thompson :
If they underwrite through Fannie Mae, they can/will count 75% of the income stated on the lease or appraisal whichever is lower.

If they underwrite through Freddie Mac, the income has to be on your tax returns for 2 years before its counted as income.

Most loan officers will tell you they can't count it and will count it against you. Loan officers are sometimes "check box monkeys". (No offense!) So find yourself an educated loan officer and you won't have an issues.

 To the OP be very wary if responses like this one. The person who responded to this either doesn't understand lender's loan policies or is being deliberately misleading. Every lender has their own loan policy, which can always be more strict but not less strict than the aggregator. Put another way, even if you sell directly to a GSE like Fannie Mae you can (and most likely will) have stricter underwriting standards. Those loan standards are based on the risk weighted pricing your bank is trying to achieve, the current performance of your banks portfolio with the aggregator, the individual underwriter's portfolio performance, etc. The bottom line is that the Checkbox Monkeys don't just go by some alleged Fannie Mae standard.

Originally posted by @Michael Worley :
Originally posted by @Justin Thompson:
If they underwrite through Fannie Mae, they can/will count 75% of the income stated on the lease or appraisal whichever is lower.

If they underwrite through Freddie Mac, the income has to be on your tax returns for 2 years before its counted as income.

Most loan officers will tell you they can't count it and will count it against you. Loan officers are sometimes "check box monkeys". (No offense!) So find yourself an educated loan officer and you won't have an issues.

 To the OP be very wary if responses like this one. The person who responded to this either doesn't understand lender's loan policies or is being deliberately misleading. Every lender has their own loan policy, which can always be more strict but not less strict than the aggregator. Put another way, even if you sell directly to a GSE like Fannie Mae you can (and most likely will) have stricter underwriting standards. Those loan standards are based on the risk weighted pricing your bank is trying to achieve, the current performance of your banks portfolio with the aggregator, the individual underwriter's portfolio performance, etc. The bottom line is that the Checkbox Monkeys don't just go by some alleged Fannie Mae standard.

 I take offense and I'm sorry you feel that way. I've dealt with several loan officers. Very few of which actually knew the true underwriting guildelines. If you'd like to question my knowledge please by all means go ahead. I can tell the OP the truth not some experience I never had. So please by all means question my advice or knowledge anytime and I'm sure I can put to rest any questions you may have. 

the real world answer depends on the lender like the above mentions however the bank I am at would count the above as follows in these assumptive scenarios:

-  if your new home is using VA financing - no you cant use "net positive," rental income when departing a prior residence however you can use your 75% of gross rental income to offset your mortgage payment so it doesnt count against you. No equity on the departed residence is needed to use rental income.

- conventional financing - yes you can use net rental income to help you qualify for your new proposed home. No evidence of equity required on departed residence.

- FHA - yes you can use net rental income to help you qualify for your new proposed home. This option depending on bank may still require 25% equity from the departing primary to use rental income just FYI.

- Portfolio Options - depends the portfolio investor however I've seen some require and not require bits and pieces of the above. I've seen some that allow you to use rental income from your departing residence even with out a physical tenant in place at the time of close on your new home etc, 

A Knowledgeable lender will know how to best express your strengths and minimize your downsides to get you the most effective financing scenario that hits your goal and criteria. 

Albert Bui, Lender in CA (#345453), WA (#345453), TX (#345453), and TN (#345453)
949-514-5106

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