Updated 8 months ago on . Most recent reply
How to get around with 75% rental income rule?
I have three rental properties and am looking to purchase a fourth one. I have been using conventional mortgage for my properties. The three rentals all have okay cash flow which is at least positive. However, as many of you know, most lenders only use 75% of the rental income so from their perspective my cash flow would be actually negative. Also, I'm taking a huge pay cut for my new job. As a result, my DTI ratio is now greatly reduced due to this calculation method and my lower income. With that being said, I'm seeking for advice and tricks on gettting around with this 75% rule to allow me purchase my next property.
If anyone know lenders that are flexible with this 75% rule around Detroit area, please let me know. Thanks.
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#2 Creative Real Estate Financing Contributor
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- Charleston, SC
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#2 Creative Real Estate Financing Contributor
- Lender
- Charleston, SC
If your existing rental properties reported their financial performance on your most recent Schedule E, then your lender should be using a net cashflow analysis based on the Sched E figures for your DTI for those properties in most scenarios. If they have not reported on your Sched E yet, then 75% of the gross rent is appropriate. This is specifically for conforming loans.
If youre referring to the rental income from the new property that youre buying, then 75% of the gross rent for that specific property is what's used in almost all cases.
If DTI/income calc is the only thing holding you back, I recommend looking into DSCR loans. Most programs will use the full gross rent for the new property, not 75%.
I dont know all of the specifics of your scenario, but this is a general overview.
- Patrick Roberts
