Rental Income Counting toward Debt to Income Ratio

5 Replies

We are looking to get another mortgage to purchase an investment property.  One company told me that our debt to income ratio is to high (we have 2 investment mortgages) and said we would not be able to come rental income because it has never been filed in our tax return (we just started earlier this year).  I also heard that we need to have filed rental income on our tax return for up to 2 years.

I just spoke with another loan officer who said that he can count 75% of the rental income for each investment property and that our DTI is fine as long as we have the lease agreements. I wanted to get some feedback on which loan officer is correct under the Freddie Mac/Fannie Mae standards as I want to know before I go under contract and the loan falls through.

When I broached this topic with my lenders I was told that as long as the property was on my tax return they would use it in their assessment. Had I purchased something last year that would have been on my return then they would use it. I'm not sure about a mandatory 2 years for rentals.

Also, all lenders differ in what they do in-house and may be quoting incorrectly for Fred and Fan.

What your 2nd lender said seems more appropriate to what I have experienced.

@Irene Chen

Just curious about experience landlording within a SDIRA. 

The only experience I have in what I have invested in within my SDIRA, which is going on 3 years with 2 units and 1 year with another unit. Because they are in a SDIRA, there are no 'tax papers' as far as a record showing up like outside of a SDIRA.

Can this experience count towards the requirements using traditional financing? 

Thanks, Dan Dietz

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Irene, I've had banks tell me the same about counting rental income. They won't count anything that's not on your tax return. That seems pretty standard from all the lenders I've dealt with recently.

However, I've heard the rules are changing for how much rental income is counted. 75% was the standard before but lately, I've heard lenders are starting to count 100% of that income.

As for having the property on your returns for 2 years...that's a lame rule and I would look for funding elsewhere. Who has time to sit and wait for that long?

@Irene Chen I second all the ones saying counting 75% of the rental income is the norm. Typically, if you do not have 2 years of experience and tax returns they will require a copy of the lease to prove the income. I believe FHA (and possibly others) actually allow for 75% of the expected rent in situations where you are purchasing vacant units. I'd look for a new lender.

Best of luck and happy investing!