Hi all! I'm looking to purchase my first rental property (second mortgage); However, on confirming with our bank, they do not consider future rental income from the property on their assessment. We currently have our first mortgage for our primary home with them. Is this normal for banks? As far as I know they should be considering a portion of the future rental income at least? Thank you!
You are getting a second mortgage on your primary residence in order to invest into a rental property? In my experience, they are not going to use the potential income from a rental property (you do not own yet) towards qualifying you for a second mortgage on your primary residence. When you are purchasing rental properties, especially 5+ unit apartment buildings, you can utilize the income towards qualifying for the mortgage (on that property). (Of course, you can do portfolio loans that utilize income from all of the properties towards the loan but that is not what we are talking about here.)
Investor · NC · Member since 2020 · 9 posts · 7 votes
3y
Look into DSCR loans. DSCR = Debt Service Coverage Ratio. Not all lenders do this, but this is a loan where they don't consider your income, but rather the income potential of an investment in relation to its cost.
Lender · Fort Lauderdale, FL (Lending in FL CT GA MI PA) · Member since 2022 · 470 posts · 349 votes
3y
The general guideline for conventional is to take 75% of rents (actual lease or market rent) as income. Your bank may have an overlay that doesn't allow them to count rental income at all. You may need to contact another lender to see their policy.
DSCR mentioned above is also a possibility, this will take rental income vs mortgage payment with no regard for your personal income ratios. These are more expensive with rate and fees though.
You are getting a second mortgage on your primary residence in order to invest into a rental property? In my experience, they are not going to use the potential income from a rental property (you do not own yet) towards qualifying you for a second mortgage on your primary residence. When you are purchasing rental properties, especially 5+ unit apartment buildings, you can utilize the income towards qualifying for the mortgage (on that property). (Of course, you can do portfolio loans that utilize income from all of the properties towards the loan but that is not what we are talking about here.)
No, this would be a separate mortgage for the rental property itself. Based on my understanding that they would not consider the potential rental income is that they would only use our current income to evaluate whether we qualify but also considering we already have an existing mortgage with them for our primary residence. In this way, we wouldnt have much wiggle room in terms of how much we can get on the loan.
No, this would be a separate mortgage for the rental property itself. Based on my understanding that they would not consider the potential rental income is that they would only use our current income to evaluate whether we qualify but also considering we already have an existing mortgage with them for our primary residence. In this way, we wouldnt have much wiggle room in terms of how much we can get on the loan.
Hey April! If this is a conventional investment home loan, there are lenders that WILL count the proposed rental income from the property. Some lenders have different requirements, so this particular lender you're dealing might not use it.
Rental Property Investor · Member since 2018 · 826 posts · 809 votes
3y
@April Laspinas you’ll need to shop for other lenders. The restriction you’re experiencing is not uncommon for large lenders if you do not have 2 years of rental income history in your tax returns. You have no experience and they deem you too risky to lend to.
Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
3y
@April Laspinas - You should reach out to small local credit unions or banks. A lot of them are portfolio lenders and keep the loans in house. As a result, they don't have to follow Fannie Mae and Freddie Mac guidelines. One of the major restrictions holding you back is the lender is not letting you count rental income and is basing it on your tax return. There are lenders out there that will take signed leases instead of tax returns to qualify the income, but they are not easy to find. I'd recommend making a list of all of the small local credit union and banks in a 50 mile radius and reaching out to all of them to inquire about the loan you are seeking. You may hear a lot of No's but I would expect a Yes after doing some work. Good luck!