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Others here are more knowledgable than I, but I'm betting this occurred in the 'good old days' when mortgages were handed out like candy with no doc and stated income loans.
Nope. We've owned this house for 6 months. Our rental income exceeds our mortgage amount, so it doesn't count as debt. We only needed a signed lease, length of rental history wasn't asked for.
Nope. We've owned this house for 6 months. Our rental income exceeds our mortgage amount, so it doesn't count as debt. We only needed a signed lease, length of rental history wasn't asked for.
Do the rentals show up in your schedule E and did you submit your tax returns?
We did submit tax returns for the last 2 years. We do electronic filing and follow the H&R Block computer program for taxes, so I'm not sure about "schedule E." We do report all of our rental income and our losses. Our property management company puts them all in to a sweet little report for us every year and sends us the proper tax forms.
All the last 2 mortgage companies cared about was that it was rented, and how much for. The mortgage on the home is 1500/mo (they wanted the statements), and our renters pay 1750 per month. The mortgage companies have not cared how long it was rented for, or even what the lease terms are. They just wanted proof that it was rented, and wanted to know how much. If it was less than the mortgage, then that would show up in our debts, but since it's more, they just shrug it off completely. We do keep it in mind, though, and we make sure when we buy homes that we can afford both mortgages if it doesn't rent. I've known people who don't and they really struggle with unexpected costs or if the home isn't rented.
The mortgage companies have not cared how long it was rented for, or even what the lease terms are. They just wanted proof that it was rented, and wanted to know how much.
If all they cared about was that it was rented, you wouldn't need to submit your tax returns. Behind the scenes was an underwriter looking at your tax returns and calculating your income based on your tax returns. The tax returns are what shows that you have 2 year of landlord history.
If all they cared about was that it was rented, you wouldn't need to submit your tax returns. Behind the scenes was an underwriter looking at your tax returns and calculating your income based on your tax returns. The tax returns are what shows that you have 2 year of landlord history.
All mortgage companies ask for tax returns, even before we had the rental. In addition, one mortgage we got, after the housing crash, the home had been rented only for a couple of weeks.
All mortgage companies ask for tax returns, even before we had the rental. In addition, one mortgage we got, after the housing crash, the home had been rented only for a couple of weeks.
That's bizarre, and honestly, doesn't sound like good fiscal policy. (Did we learn NOTHING from the housing bubble bursting??)
I could understand if you have a signed lease for WAY more than the mortgage, but even then it's risky as tenants can up and leave whenever they want (they're not SUPPOSED to, of course, but sometimes they do). Does the area where the rental is have few vacancies (i.e. a robust rental market)? Otherwise I can't figure out how it was approved, even with excellent credit. (I'm astonished that the mortgage companies would, as you put it in post #13, "just shrug it off completely." Seriously??!!)
That's bizarre, and honestly, doesn't sound like good fiscal policy. (Did we learn NOTHING from the housing bubble bursting??)
I could understand if you have a signed lease for WAY more than the mortgage, but even then it's risky as tenants can up and leave whenever they want (they're not SUPPOSED to, of course, but sometimes they do). Does the area where the rental is have few vacancies (i.e. a robust rental market)? Otherwise I can't figure out how it was approved, even with excellent credit. (I'm astonished that the mortgage companies would, as you put it in post #13, "just shrug it off completely." Seriously??!!)
They say they didn't include the rent in the DTI which means they could afford both places without needing the rental income to qualify.
They say they didn't include the rent in the DTI which means they could afford both places without needing the rental income to qualify.
In post #8 they said the lender didn't consider the rental to be part of their DTI ratio (although they said they themselves did ... not sure what that means since I can THINK I can afford something but the bank can disagree). I am still puzzled about the statements about the lender. Using the "usual rule" of 75% of rental income would yield $1,312.50 (75% of $1,750), which is $187.50 less than the mortgage of $1,500. My lender would have counted that as a "debt" for me. (I do understand that not all lenders use the same method, but I am very surprised that a lender wouldn't do some sort of calculation like this. Rentals have vacancies and other expenses, so to not count them at all ... just seems odd.)
Note, I'm not questioning what the poster wrote -- just the thought process of the bankers behind the scenes.
The formulas continually change - but make no doubt, since ATR, a product of Dodd-Frank (or is it Frank-Dodd?), lenders are most definitely counting the mortgage payment, it's the law for anyone purchasing a primary residence. The question is, will the use of rental income be able to be used to offset the mortgage?
We can give credit for rental income depending upon the situation. On a newly purchased investment property if the purchaser has a track record as a landlord, has 6 months reserves on each home they own, we can use the rent to offset the mortgage. On a residence turned rental (when purchasing a new owner occupancy home), a track record as a landlord is not needed if there is 30% equity and 6 months reserves for each property owned. When an investor has existing rentals, taxes are used for the calculations. There is room for variance, but it must be documented and supported to not use the 24 month average for the tax return calculation. Examples of reasons include: house not rented due to casualty loss, home purchased mid year, one of a kind capital expense. This would be supported with a HUD I, copy of insurance claim, and documented loss. When tax returns are used for the calculation, it's no longer take the net and add back depreciation - it's gone way more complicated and rarely in the consumer's favor.
There are pockets of money that allow the use of rental income without regard to equity - I worked for two different banks that did this- and one got so choked up on their own process it was a blood bath to get the file to closing.
And finally, there's the case where rental income is not needed to qualify. But I would be deeply surprised if a mortgage payment was "ignored." I can't even conceive how that would happen.
Well for us, we're higher income, so the mortgage on the first home was very little of our take home pay. We have always been very conservative when buying homes. We have credit scores over 800, investments, and a healthy savings account. When we went for the first mortgage after turning the other home in to a rental, we were asking for so little compared to what we qualify for, that they really did not care at all. We've always been very careful to make sure that we could afford both the rental and our primary residence in case, you know, stuff happens. Then we sold that home and bought this one, which is more than we have ever stretched our budget for before. We're in a high COL area, and it is our "forever" home. We can still afford both homes easily, though. By this point, the home had been rented for 3 years steady. It's a newer home, so repairs are pretty minimal. Stuff like microwaves, dishwashers, A/C, but nothing major.
From our perspective as buyers, the mortgage company did not care at all. The only additional documentation they asked for was the copy of the lease, and they told us unequivocally that it was no problem at all. I was nervous with the first mortgage, but not so much with the second, since it was so easy previously. Maybe they had to do extra work, I really don't know. But it was a total non-issue for us.
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