Does DTI ratio consider potential rental income?

Question

I'm very curious about using rental income to help my DTI. My current situation is, my wife and I gross $9,400 a month combined. FICO scores are 740+ for both of us. We have a mortgage on our primary. Our DTI is about 25%. We plan to purchase a new home to be our new primary residence, and rent out the home that we are currently living in. We have 5% to put down on the new home, which we plan to secure a conventional loan on as it will be our new primary residence. Here are my questions and I really appreciate any insight you can provide!

1.) Since I've never owned a rental, and have no proof on my tax returns or experience, is there a waiting period of say 1-2yrs after renting out my first property and reporting the rental income on my taxes before I can use the predicted rents to help my DTI? How does this all work?

2.) What do banks require as proof for all of this? Will I need to have my current house rented out with a lease signed and in place before I secure financing for buying my new primary residence? (In order to have the rental income count towards our DTI)

Thank you so so much for helping us. I really appreciate it!

John Acheson · Answer

what about new construction of a plex?

how do banks estimate potential income?

Allan Smith · Answer

This varies wildly depending on the loan you are securing. I will say you will almost definitely need a lease however.

the loans with the best rates, government-backed 30-year fixed, will give you a hard time using rent in your debt to income. When I have applied for those types of loans, my rental income is almost non-existent, even with 40 units that have grown over the past four years.

a local Commercial Bank that likes to lend to landlord would be a great first step. A website like lending one.com or Lima one might be able to use your rental income without years of History.