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I recently converted by primary residence into a rental property. I would like to purchase another property as my primary residence in a few years. The mortgage and fees are comparable to what I would be paying for rent. Is it possible to get around the rule of only counting the income reported on your tax returns? Obviously, the income reported on the tax return will net lower because of all of the tax deductions. I believe mortgage companies only count 75% of that amount which is just too low. Are there any other options for me?
What do you mean it will be lower because of tax deduction? If you are talking about depreciation, it is added back, does that help? Also they wiill probably use your full mortgage payment as an expense , not just the interest on schedule E. It is about your true net income.
Last edited by thelopez2; 11-12-2013 at 06:00 PM..
What do you mean it will be lower because of tax deduction? If you are talking about depreciation, it is added back, does that help? Also they wiill probably use your full mortgage payment as an expense , not just the interest on schedule E. It is about your true net income.
They do count the mortgage as an expense. However, they do not count the total amount of rent that you receive. They take 75% of the amount reported on your tax return after deductions. I thought they took 75% of the rent received. This is so frustrating.
You can find pockets of portfolio money where 75% of the rental income is counted on the departing residence without regard to equity, determined by the fair market rent by an appraiser. However, the minute it is listed on a tax return, you have introduced contradictory information, and the tax return must be used for the rental income. That said, make sure you have 20% down because the mortgage insurers won't take the same view.
How do I know about this particular portfolio feature? My last bank had this niche, as does my current. Unfortunately, we have a limited (8 states) market area. Other niches include 95% loans up to 625K (one MI company will insure). I had a listing agent tell me my money did not exist and I had to get a senior VP involved to document the contrary! My point: don't accept empirical statements regarding mortgages as the gospel truth. Check and recheck, there probably is someone marching to a different drummer.
Things can change a few years from now, so this is all speculation. Things are constantly changing.
How long have you been out of your out unit?
What will the CLTV on your rental property be?
The OP already moved out of the unit and is renting, do you have two full tax returns with the rental income?
Depending on the CLTV, of your rental property, 100% of the rent minus expense versus 75% minus expense can be used with some lenders.
I would keep separate bank accounts where the rental income comes in and where it's expense comes out of Every year you can look at this other bank account and see if it is growing or shrinking. Sure there are others ways to do it.
There are other options which will vary based on state and lenders, many revolve on equity and down payment.
You can find pockets of portfolio money where 75% of the rental income is counted on the departing residence without regard to equity, determined by the fair market rent by an appraiser. However, the minute it is listed on a tax return, you have introduced contradictory information, and the tax return must be used for the rental income. That said, make sure you have 20% down because the mortgage insurers won't take the same view.
How do I know about this particular portfolio feature? My last bank had this niche, as does my current. Unfortunately, we have a limited (8 states) market area. Other niches include 95% loans up to 625K (one MI company will insure). I had a listing agent tell me my money did not exist and I had to get a senior VP involved to document the contrary! My point: don't accept empirical statements regarding mortgages as the gospel truth. Check and recheck, there probably is someone marching to a different drummer.
I appreciate this statement. I do not plan to buy for a couple of years but there has to be a way around this. Hopefully the rules will change by the time that I am ready.
Things can change a few years from now, so this is all speculation. Things are constantly changing.
How long have you been out of your out unit?
What will the CLTV on your rental property be?
The OP already moved out of the unit and is renting, do you have two full tax returns with the rental income?
Depending on the CLTV, of your rental property, 100% of the rent minus expense versus 75% minus expense can be used with some lenders.
I would keep separate bank accounts where the rental income comes in and where it's expense comes out of Every year you can look at this other bank account and see if it is growing or shrinking. Sure there are others ways to do it.
There are other options which will vary based on state and lenders, many revolve on equity and down payment.
It has been 7 months. I know that I have to wait for at least two years. Does it have to be 24 months or two tax returns? What is CLTV? I can handle 75% of the rent but the tax return amount is going to be considerably lower.
I appreciate this statement. I do not plan to buy for a couple of years but there has to be a way around this. Hopefully the rules will change by the time that I am ready.
I'm pretty sure you don't want anything to change in a couple of years. The guidelines makes sense. Try comparing your 75% of gross minus expense and compare that with your 100% gross minus all of your expense on schedule E and minus principal. This is cash flow and should be added or deducted from your regular income.
Depending on how much equity you've paid down, not gained through appreciation, you might want to consider refinancing to change your monthly obligation. This really depends on the interest rate and balance. Also even if you are paying more in interest buy you need to do it for growth reason, that is just the cost of doing business, which sounds like what you are trying to do, empire building.
What state do you live in?
CLTV Combined loans to Value all loans on the property divided by the property value.
I don't know why it would be 'considerably lower' was it vacant? Do you have a professional accountant you can ask questions? If you did I have some questions you can ask them.
Is the whole reason you are waiting to buy in a couple of years is because you feel you can't get a loan now?
I appreciate this statement. I do not plan to buy for a couple of years but there has to be a way around this. Hopefully the rules will change by the time that I am ready.
Once it's on the tax return, that is the income/expense used. Now that no doc loans have been for the most part outlawed, I do not see any changes on the horizon. Actually, just the opposite. We are going to see the market tighten up come January 2014.
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