Yes, you can use rental income from investment properties to help qualify for a mortgage. Conventional and FHA allow you to count 75% of documented rental income (the 25% buffer accounts for vacancy).
You need 12 months of lease agreements or a signed lease. If you do not have a lease yet, some lenders allow an appraisal-based rental estimate.
How Rental Income Is Calculated
Lenders use the 75% rule: they take the documented rental income and multiply it by 75%. The remaining 25% is a vacancy and maintenance buffer. This 75% figure is added to your gross income to help you qualify.
Example: If a property rents for $2,000/month, the lender counts $1,500 ($2,000 x 75%) as qualifying income. This $1,500 is added to your other income to calculate your DTI.
Documentation Requirements
- Signed lease agreement (current or future tenant)
- 12 months of rental history (bank deposits or canceled checks)
- Schedule E from tax returns (if you have owned rental property before)
- Lease or appraisal-based rent estimate (for new properties without a tenant)
How It Affects Your DTI
Rental income increases your qualifying income, which lowers your DTI. This can help you qualify for a larger loan or improve your chances of approval. The property's own mortgage payment, taxes, and insurance are also factored in.
Using Rental Income for Multiple Properties
If you already own rental properties, the income from those properties is counted when you apply for a new mortgage. Lenders will look at Schedule E of your tax returns to see the net income or loss from each property. Some properties may show a loss on paper due to depreciation, which can actually hurt your qualification.
Appraisal-Based Estimates
For properties you are buying as an investment, some lenders allow the appraiser to provide a market rent estimate. This can be used even without a signed lease. The appraiser compares your property to similar rentals in the area.
