Qualifying For A Mortgage With Rental Income

December 2nd, 2019

keys to a new house

I have clients who are buying a rental property or who are buying a primary residence and already own rental property. And they 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.

What documentation may be needed?

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.

What 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.

What if I have no history of renting the home out?

What 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. We 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”. This will 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.

What about a property I just renovated for the last year?

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.

Conclusion

Always talk to an experienced mortgage loan officer. Get pre-approved in advance and work through all the details of your qualifying for a new mortgage loan.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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