Could Rental Income immediately offset your DTI?

11 Replies

Hello BP!

I am looking to implement the BRRRR strategy but I do have some questions. I have read multiple forums about other investors using future rental income to qualify for loans, I am wondering if it's possible to have my rental income immediately offset my debt to income ratio without filling on my tax returns for two years. It seems that every post I read, each person has different takes on this, does it primary depend on the lender?

You can use 75% of rental income towards your DTI to help qualify for Fannie/Freddie conventional loans.

I was told with my rentals  in the beginning that  I needed two years of  consistent  monthly rents coming in to qualify as solid income whatever that means... But yes I think it depends on the lender because I've heard that depending on the kind of loan it is you're going for, some Underwriters will accept signed leases and check deposits to verify

Originally posted by @Brian Garrett :

You can use 75% of rental income towards your DTI to help qualify for Fannie/Freddie conventional loans.

 Hi Brian,

Thanks fo the response, do you know if the rental income could be immediately applied without filing it onto my tax report for 2 years? 

Are you talking about single family, conventional loans? If so, not likely. Lenders require seasoning of the property in order to a) prove that it will carry that level of rent, and b) prove that it's not losing money. If you are talking about commercial, like a multi-family, the rent of the units plays into getting the loan in the first place. 

Originally posted by @Peter Fennig :

I was told with my rentals  in the beginning that  I needed two years of  consistent  monthly rents coming in to qualify as solid income whatever that means... But yes I think it depends on the lender because I've heard that depending on the kind of loan it is you're going for, some Underwriters will accept signed leases and check deposits to verify

Good to know, thanks Peter! I am keeping my fingers crossed that thats the case. 

Originally posted by @JD Martin :

Are you talking about single family, conventional loans? If so, not likely. Lenders require seasoning of the property in order to a) prove that it will carry that level of rent, and b) prove that it's not losing money. If you are talking about commercial, like a multi-family, the rent of the units plays into getting the loan in the first place. 

 Hey JD,

Yeah I was looking into having it offset my qualifications for a conventional loan. Do you think a solution would be better going for a portfolio/blanket loan instead of a conventional loan? If I decide to go that route, would it affect my cash out refi for the BRRRR strategy under a portfolio loan?

@Bryan Pham

I was also told that I can use 75% or the future rent against my DTI to qualify for the loan. I was required to provide a current lease.

I purchase a property last month and the lease was expired(month to month). I had to ask the seller to sign a new lease with the tenant that I then provided to the lender. 

If you're talking about loans in your personal name, then you will need 2 tax returns to be able to use the income for loan purposes. That means it could be 1 year and 1 month. If you are going with local banks and using a commercial loan product, then it is more favorable. In that case they will often use that income right away. 

@Bryan Pham I'm with Brian and Jason here, unless things have changed in the last year. I bought a new primary residence last year and was able to use the lease for the home I was living in (converted to a rental) to offset my DTI. This was a Wells Fargo conventional product. They took 75% of monthly rent as income, then the PITI/HOA as debt payment.

Strangely enough, I had a ton of demand and ended up buying another rental a month after I closed on the primary through someone I knew. They allowed me to show it before i closed and I ultimately secured a tenant prior to the full underwriting process, and they allowed me to use that future lease against my DTI. I would have qualified anyway, but it allowed me to put less money down.

Depends on the lender. My mortgage broker uses the gross rents from my rental properties when creating a new pre-qualifying letter, even though they haven't been rented for more than the standard 2 years.