Counting Rental Income on New Mortgage

Counting rental income for properties already owned differs from what the average borrower assumes.  In fact, many believe counting income from a rental property is as easy as plugging in the rent a  received for the property.  Not quite, but you knew that because this is the mortgage industry and nothing is that simple!

Including Rental Income on Home Loan

Fannie Mae issued guidance in early 2013 regarding what rental income borrowers can use for existing rental property when applying for a home loan.  The Fannie Mae calculation typically results in less income allowed when compared to the old method.  While not necessarily more favorable, the new rental calculation is more accurate than the old method.  The new calculation includes 3 steps and those steps are:

1:  Rental income/loss + depreciation + amortization + casualty loss + one-time expenses + insurance + mortgage interest + taxes = ADJUSTED RENTAL INCOME/LOSS

2:  ADJUSTED RENTAL INCOME/LOSS / months rental income received = AVERAGE MONTHLY INCOME/LOSS FOR PROPERTY

3: AVERAGE MONTHLY INCOME/LOSS FOR PROPERTY- borrowers current monthly mortgage – monthly property taxes – monthly insurance – monthly hoa payment = MONTHLY NET RENTAL INCOME/LOSS FOR PROPERTY

Easy as 1..2..3 right?  Loan applicants need not worry about doing this math on their own.  However, it is helpful to know how mortgage lenders view and computes rental income.

By Jeremy House
Google

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