Include Rental Income on Rental Purchase

The rules for considering rental income on an application for a new mortgage have changed in recent years.  Many of the changes have made it more difficult to include rental income on a mortgage application.  However, when it comes to including rental income from a new rental property being purchased there is still a way to do so in order to help a borrower qualify for a new rental property purchase.

If a borrower is purchasing a new rental property, their mortgage lender may include estimated/projected rental income for the property being purchased on the mortgage application.  The rental income that may be used is determined by the appraiser that is assigned to complete an appraisal on the subject property.

The appraiser completes a second report (in addition to the appraisal) that generates comparable rental data from similar rental properties near the property that the borrower is purchasing.  After researching all of the comparable rental data, the appraiser calculates an estimated rental income figure for the subject property.  When the appraiser completes the appraisal the buyer’s lender takes the estimated rental income figure generated and applies a “vacancy factor” of 25% before adding the income to the buyer’s loan application.

Example:
(Appraisers Estimated Income) $1,000  less  (Vacancy Factor of 25%)  $250 = $750 (Rental Income Used on Application)

In many cases, this may help a borrower qualify for the purchase of a new rental property.

By Jeremy House

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