Omitting rental property mortgage from debt

[Hiro Kitagawa]

Hello BPers,

I just started renting my condo to a tenant at the beginning of April.  Upon speaking with two loan officers on conventional loan, I received quite contrasting answers.  My questions was if I'm getting rental income to offset the mortgage, if they would "omit" that debt and enable me to qualify for higher amount of loan.

National bank said:

Yes, if you provide (1) signed lease agreement, (2) security deposit and (3) first month rent, then we can negate your rental property debt (mortgage) and qualify you to a higher loan.  As you provided them, you can go shop now.

Community bank said:

Yes but only if you have held the property for 24 months or more.  Otherwise we will have to count the rental property mortgage as full debt.  This is Fannie Mae regulation so it would be true for all banks selling the loan to them.  

What are you all's understanding on this?

[Chris Mason]

Hi @Hiro Kitagawa,

@Roy N. is correct, Community bank has an overlay that would likely be a deal-breaker if you wanted to move forward working with them.

National Bank's answer appears to indicate a minimal non-deal-breaking overlay. It's not 100% perfect, but you can certainly work with that as a REI.

The true no-overlay answer is what National Bank said, except that not only can the rent offset the PITI of the property & omit it, but if there's anything left over [ eg, if it's cashflow positive ], it can be used as mortgage qualifying income. 

Generally it is unreasonable to expect a MLO to estimate what that mortgage qualifying monthly net rental income number might be without copies of the lease, security deposit + first month's rent, mortgage statement, property tax bill, homeowner's insurance declaration page, and if applicable the HOA bill. No normal human has those numbers all memorized, so stated numbers hold no value.

That, in a nutshell, is how people with no traditional day-job get qualified based only on their rental portfolio. That's currently how you "win" at mortgages. :)

Here is a link to the unfiltered FNMA guideline itself @ FannieMae.com, "Rental Income: Partial or No Rental History on Tax Returns."

One of my coworkers thinks I should get business cards that read "Rental Income Is Mortgage Qualifying Income, Always" on one side, and has my phone number on the other, with nothing else on it. :P And then, presumably, I would just go to REIA and throw them at people like ninja stars.