If you own rental properties, you can include the net rental income for qualification. But, how much of this rental income can you include?

If you owned the rental for less than a year, and it does not appear on your last tax return, underwriters generally use 75% of the rental income on the lease. You would subtract the mortgage payment, real estate taxes, homeowners insurance, and HOA to get the net rental income for underwriting.

If you owned the rental for more than a year, and it is reported on your tax returns, then the calculation is based off of your tax returns and not on the lease. To determine income, you would take the net rental income or loss and add back depreciation, mortgage interest, and taxes and insurance if not included in the mortgage payment. You would then take this number and divide it by 12, and subtract the mortgage payment (and insurance and taxes if not included in the mortgage payment) and HOA. This would be the number used for underwriting.

So, if you have rental properties, the underwriter will not solely use the monthly rent you receive as income. You should give them your tax return and lease so they can make an accurate calculation in determining whether you can qualify for the loan.

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