Lenders allow you to use rental income from investment properties to qualify for a mortgage. The rules depend on the loan type and your experience as a landlord.
Conventional and FHA loans typically count 75% of documented rental income. VA allows 100% of rental income if you have managed rental properties for 1+ years.
Documentation usually requires a signed lease agreement, proof of deposit, and sometimes Schedule E from your tax returns.
The 75% Rule
Lenders apply a 25% vacancy factor to rental income. If your lease shows ,000/month rent, the lender counts ,500 as qualifying income. This accounts for vacancies and maintenance costs.
Documentation Required
You need: current signed lease agreement, proof the first month's rent was deposited (or security deposit), property insurance, and sometimes property tax records. Newly purchased properties may need an appraisal-based rent schedule.
VA Special Rules
VA allows 100% of rental income with no vacancy factor if you can show 1+ years of landlord experience. For new landlords, VA counts 75%. VA is generally the most favorable for rental income treatment.
Using Schedule E
Schedule E from your tax returns shows your actual rental income and expenses over the past 1-2 years. Lenders may use Schedule E instead of lease agreements, especially for properties you have owned for a while.
Multi-Property Qualification
To qualify with multiple rental properties, each property is evaluated individually. Lenders total the net rental income (after mortgage payment) from all properties to calculate your overall qualifying income.
Landlord Experience
Lenders prefer borrowers with 1+ years of landlord experience. New landlords may have rental income treated less favorably or need a larger reserve requirement.