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--- ellen (6/11/2012)
Buying or refinancing a home with nontraditional income sources could create some concern for borrowers who are used to standard documentation. Income-producing properties and rental units may help a borrower qualify for a mortgage loan. According to the ERA website, "Lenders usually consider a percentage of the total current rental income when calculating how much they're willing to lend, if you're buying a vacant property, you must qualify for financing without factoring in rental income." For an investor who owns several rental properties or apartment buildings, rental income may provide funding for the majority of her expenses and lifestyle.

Step 1

Report rental income on your tax return. Lenders prefer to count stable income that is likely to continue. The rental income that is reflected on your tax return will be averaged for the past two years. Additionally, having experience as a landlord will help you qualify for a mortgage.

Step 2

Gather copies of the lease agreements for each unit that is currently rented. Lenders require a lease to reflect the tenant’s name, lease term and the amount of rent. Additionally, all leases must be signed and dated by each party.

Step 3

Calculate the usable portion of rental income toward a mortgage. For each non-owner-occupied property, multiply 75 percent of the total rental income For example, if three units lease for $400 each, the usable portion of rental income toward a mortgage would be $900 (3 x $400 = $1,200 and $1,200 x 0.75 = $900). This formula is based on an industry standard that taxes, insurance and maintenance costs will equal about 25 percent of the income that a property generates. Your monthly debt will be counted against the allowable monthly rental income.

Step 4

Save money to provide at least six months of mortgage payments for each rental property you own. Having liquid reserves will demonstrate that you are well-capitalized and could position you to obtain a loan using rental income.

Step 5

Choose a lender, and apply for a mortgage loan. Provide your loan officer with income documents, bank statements, tax returns and copies of all rental leases. Your loan officer will list the rental units and income on the "real estate owned" section of your loan application.

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