Mortgage and rental income?

Question

If i buy a 2 unit house on a residential mortgage and rent out one of the unit and live in the other. Can i claim that rental income as an added income when applying for a residential mortgage?

Sorry, to be more exact I would apply the 2 unit as a primary residential and not an investment property. However, when i go to apply for a mortgage after finding a 2 unit property I would live in 1 and rent the other unit. And I am not buying a property with a tenant already; I would have to find a tenant. I want to include that unit's rental on to my eligibility to get a good amount of loan.

Answer 1

Can you count the rental income as income? MAYBE

In a purchase, the income is calculated at 75% of the rent received as documented by lease. In a single unit (non-owner occupied) purchase the “rent received x 75%” is balanced against the new PITI payment; positive is income, negative is debt. You can claim and use income from the rental unit if: the unit is currently occupied with lease or you have a new lease for a new tenant (of course the new lease would have to be subject to the purchase closing).

In a 2+ unit purchase the purchase is an owner-occupied purchase and any potential income is handled the same way as the single unit purchase except the balancing against payment is not done because the mortgage payment is already calculated as debt, thus any rented units with leases will yield income.

If the transaction is a refinance, income is defined as a two yr average of schedule E income as reported to the IRS. If the subject property has not been owned for two tax years then the 75% rule is used.

If you are purchasing using VA financing, you can not use rental income without proof of two years landlord experience.

Unless you are getting private, portfolio, or commercial financing, the rules are the same no matter what state.

Required cash reserves are program specific, but remember if you are purchasing 2+ units and living in one, the requirements are for an owner occupied purchase. (FHA has no reserve requirements.)

Answer 2

Yes, but the lender will probably want to see that you have been renting continuously for at least one year and will probably require that you have 3 to 6 months of mortgage payments in the bank as a shield against temporary financial hiccups such as a job loss, etc. That will be over and above any other down payment and closing costs for the new purchase.

I owned a number of properties over the years. Once you're ensconced as a landlord the rental income and mortgage payments are usually considered a wash as long as the rents are high enough to cover your mortgage payments on the investment properties and don't figure into the loan-to-value calculations for any new purchases. This permitted me to put together a nice portfolio of rental properties over the years.

Answer 3

It depends... Is the other side already rented out? If so, is the client month to month or in a long term lease? You'll likely be able to utilize 75% of the rental income which will help aid your debt to income ratios.

If you ratio without the rental income, you should be fine.

Different loan programs will require different amounts of reserves in the bank. The more reserves you have, the more likely you are to require for better rates!

Good luck! Now is a great time to buy!

Answer 4

I buy rental properties in CA. Here you can NOT count the rent of the purchasing property as income, only the rent for your other units.

The mortgage companies may handle it differently in other parts of the country.

However, I should note that I only buy vacant properties, I will not buy someone elses tenant. If there is an established tenant in residence this may make a difference.

Answer 5

First answer wrong! Second answer correct. You cannot use "potential" rent as income when applying for a mortgage unless it's already rented, then you have a vacancy factor so all will not be used. It sounds like you are buying a vacant property so your answer is no.