Qualifying For A Mortgage With Rental Income

I have clients who are buying a rental property or who are buying a primary residence and already own rental property and think they need to provide a copy of a current lease for the rental property as part of the loan application. But, that is not always the case.

 

The borrower may be able to document rental income by providing tax returns, rather than leases.  In either a purchase or refinance the borrower should have a history of renting property.  If the request is for a refinance, the borrower needs to have owned the property long enough to qualify for this option, typically a 2 year history is needed.

 

If the request is for a loan to purchase a new rental property, then having existing rental property with a 2 year track record income may allow them to use the tax return option.

If the borrower does not have a history of renting the subject property or if the borrower’s tax returns do not reflect the accurate income or expenses, then a mortgage lender may require one of two things:

1. A current lease agreement, which would allow the borrower to use 75% of the gross rent towards qualifying for the new mortgage.
2. Or an appraiser may be requested to prepare a “comparable rental schedule” to demonstrate the market rent to the mortgage lender. This would allow the borrower to use 75% of the gross market rent towards qualifying for the new mortgage.

 

There are other are examples where a lease or a comparable rental schedule may be used. Such as a rental property you have owned for 10 years, but the property has been out of commission for the last year because of extensive renovations.  Then the tax returns wouldn’t reflect accurate income.  The comparable rent schedule is an option to use 75% of the current market rent to qualify.

As with many other scenarios in getting a mortgage, always talk to an experienced mortgage loan officer or get pre-approved in advance to work through all the details of your qualifying for a new mortgage loan.