How do lenders calculate debt to income ratio using the schedule e on tax returns?
Basically, they use the rental income from schedule E for the past 2 tax years to avg your usable net rental income. This income will be added to your regualar w2 or business income to determine your total debt to income ratio (DTI) against your debts and monthly mortgage costs.
To calculate your net rental income, your total rents collected for the year are added to deductible expenses (taxes,insurance, interest, depreciation). Then that total is subtracted from your total expenses for the year. What's left is your net rental income for that year. Your last two years are averaged to give you the 24 month avg net rental income that you can use as additional income on your application.
Hopefully that makes sense. Let me know if you have any questions.
If you have 2 years history yes they calculate from Sch. E. You can get exception if the property was recently acquired although this rule is going to change pretty soon.