Count Rental Income Arizona VA Home Loan

Rental Regs for an Arizona VA Mortgage

One of the changes that has made it more difficult for some Arizona buyers to qualify for a VA mortgage when they want to rent their previous primary residence out and buy a new one are the rules surrounding rental income.  In most cases, a Phoenix area homeowner must have 30% documented equity (doc’d with an appraisal) in order to use rental income to offset an existing mortgage and to qualify.  For example, if the home they are renting is worth $200,000 and they owe $140,000 or less on it they could use the rental income on their application to offset their mortgage payment.  This helps a mortgage applicant qualify for a bigger mortgage when trying to purchase a new primary residence.  The good news for VA buyers is that Arizona VA mortgage guidelines make it much easier for a veteran to use rental income when they transfer to a new marketplace and need to rent their former primary residence.

What are VA Rules for Counting Rental Income?

VA understands that its valued veterans are going to be transferred from time to time and that they often need to purchase a new primary residence to house their family when they move.  When the home that the veteran is moving out of is secured by a home mortgage, VA allows that veteran’s Arizona VA Mortgage Lender to use rental income to offset the existing mortgage on their old primary home.  Here is exactly how the VA mortgage rule book reads.

“Analysis:  Rental of the Property Applicant Occupied Prior to the New Loan
Use the prospective rental income only to offset the mortgage payment on the rental property and only if there is no indication that the property will be difficult to rent.  This rental income may not be included in effective income.

The key to applying this guideline for Arizona VA borrowers is the last line.  This income is not to be used as additional income.  It may only be used to offset the mortgage debt they have on their old primary residence.  For example, if a borrower has a mortgage payment of $1,000 and is renting the property for $1,200 they can only use $1,000 of the $1,200.  The Phoenix area veteran cannot use the extra $200 as income.

VA Rental Example:
If an Arizona VA buyer is looking to purchase a new home after transferring and renting out their old primary the fact that VA allows rental income to be included as described above makes all the difference.

Let’s assume our borrower has monthly gross income of $6,000.

Let’s assume our borrower has a monthly debt load of $3,000 which includes $1,000 mortgage on their old primary residence.

Based on VA’s typical maximum debt to income ratio, our borrower can qualify for a maximum debt load of $3,499 (gross income x’s 56.99)

This means that our borrower (if they meet all the other VA mortgage regulations) can qualify to carry $3,499 in total monthly debt including their new mortgage.  If VA did not allow an Arizona VA mortgage lender to use new rental income on their previous primary home the veteran would only have $499 left ($3,499 – $3,000) to apply to a new mortgage.

However, since VA does allow a Phoenix area VA mortgage lender to use new rental income on the veterans old primary residence, the Arizona VA buyer outlined in our example would now have $1,499 to go toward a new mortgage payment (total debt of $3,000 minus $1,000 from new rental income = existing debt of $2,000).  Our sample VA buyer is approved with up to  $3,499 in total debt based on their monthly gross income and since $3,499 minus $2,000 (existing debt) equals $1,499, the veteran can qualify for $1,499 for a new mortgage payment!  HUGE difference!

Call or email me today to find out more about getting approved for a VA home loan.  You can also click APPLY NOW to apply online today!

In case you were wondering what VA Home Loan Limits.

By Jeremy House

 

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