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I know it sounds cliche but it depends on a couple of different things.
1) What type of loan do you want/need? Conventional, FHA, VA, USDA?
2) The type of loan you have on your existing property.
3) Which loan do you qualify for.
Each program has different requirements.
For example: FHA doesn't require you to show the rental income on your tax returns in order to count it as income to offset the existing mortgage payment if you relocated for your employer or to find work or if you have at least 25% equity in the home you're converting to a rental.
A conventional loan requirements state you have to have 30% equity in the home you vacated, a lease agreement and the receipt of a security deposit from the tenant and deposit into your account.
The guidelines in both examples DO NOT require a specific amount of time for reporting the rental income on your tax returns before it can be counted as income. You're either dealing with people that don't know their guidelines or the have "overlays" that are more restrictive.
You can see the conventional guidelines HERE on page 6
I am a little confused. Let's say my mortgage is $800 and I receive $1000 a month in rental income. The annual debt and rental income are $9600 and $12,000, respectively. Would my annual net debt be $600?
I am a little confused. Let's say my mortgage is $800 and I receive $1000 a month in rental income. The annual debt and rental income are $9600 and $12,000, respectively. Would my annual net debt be $600?
As your cash flows, yes. As FHA and Fannie figure, no. Now, this is assuming you meet the respective equity tests of 25% and 30%.
If you have a lease of $1000 per month, they will both only give you credit for 75% ($750) of the rent, so now, you have a positive of only $50 a month.
What's really interesting now, rents are skyrocketing. I recently had a gal that was anticipating $1800 a month rent. The underwriter was suspicious that was somewhat inflated and requested what is called a rent comp analysis from an appraiser. LOL, it came back she should be able to rent her place for $2100. It was one of those things, I'm certain it wasn't what she expected. (We will accept rent comp from an appraiser in lieu of a lease on our portfolio money and she was making sure we weren't working with an inflated lease).
But anyway, where I am going with this.........if the tightening continues, I would expect this to be the next on the chopping block. I'm guessing even if a property meets the equity test, I suspect lenders will not be able to apply any positive rental income in the future (unless on tax return) - only use it to offset PITI. (VA treats all rentals this way) With rents are rapidly rising, faster than home values, they are sure to cut off that avenue to us. That's my prediction.
As your cash flows, yes. As FHA and Fannie figure, no. Now, this is assuming you meet the respective equity tests of 25% and 30%.
If you have a lease of $1000 per month, they will both only give you credit for 75% ($750) of the rent, so now, you have a positive of only $50 a month.
.
What about other expenses (like PM fees, RE taxes, etc)? Do they use those to get to the net rental income, too?
SmartMoney, I just want to add a supersize thank you. The information and time you share around here is valuable, accurate and appreciated by many.
As your cash flows, yes. As FHA and Fannie figure, no. Now, this is assuming you meet the respective equity tests of 25% and 30%.
If you have a lease of $1000 per month, they will both only give you credit for 75% ($750) of the rent, so now, you have a positive of only $50 a month.
What's really interesting now, rents are skyrocketing. I recently had a gal that was anticipating $1800 a month rent. The underwriter was suspicious that was somewhat inflated and requested what is called a rent comp analysis from an appraiser. LOL, it came back she should be able to rent her place for $2100. It was one of those things, I'm certain it wasn't what she expected. (We will accept rent comp from an appraiser in lieu of a lease on our portfolio money and she was making sure we weren't working with an inflated lease).
But anyway, where I am going with this.........if the tightening continues, I would expect this to be the next on the chopping block. I'm guessing even if a property meets the equity test, I suspect lenders will not be able to apply any positive rental income in the future (unless on tax return) - only use it to offset PITI. (VA treats all rentals this way) With rents are rapidly rising, faster than home values, they are sure to cut off that avenue to us. That's my prediction.
I have a Fannie Mae loan.
I have noticed that rental prices have gone up but I am weary. What is going on is reminiscent of the mortgage crisis. If I charge too much, I may not attract a quality long term tenant. My neighborhood is mostly lower middle class. The price I plan to charge is fair. Someone is trying to get $400 more than I plan to charge. I wonder if they will get the price. I do not think the neighborhood will support it.
I am not clear on your prediction. Are they going to limit the amount of rental income that counts towards the 75% credit regardless of the actual rent? How would they do this? Do they include HOA fees?
In my opinion you would be better of clearing your earlier mortgage rather than going for another one. That's my personal opinion.
Last edited by johndepp0123; 10-18-2011 at 04:52 AM..
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