Future rental income from property can be used as a basis to qualify for a mortgage, but certain conditions need to be met. Let’s look at its criteria, how to budget accordingly, and how a hard money lender can come in handy.
Criteria for Rental Income to Count for Mortgage
Like other sources of income, rental income can be counted as a source of income for mortgage given that it is properly documented and meets certain criteria. Fannie Mae is one of the biggest buyers of conforming loans in the United States, and according to their rental income guidelines, two criteria need to be met.
The first is that you need to prove that the rental income will continue. The second is that the property should be either a single-unit property or a two-to four-unit property in which the owner occupies one of the units. If your rental agreement meets these criteria, then getting the loan should be fairly easy.
Calculating Rental Income for Mortgage
Rental income can be calculated for a mortgage in several ways. You can use the expected rental income to offset a loan you’re planning on taking. According to Fannie Mae’s guidelines, you can use 75% of the market rent to calculate the property’s net cash flow with leases or appraisals.
This means that if the monthly rent coming in is $5000, you will take 75% of it, which is 3750 and the remaining 1250 is your net cash flow. Only 1250 is used when calculating your debt-to-income ratio. Federal tax returns are also used to calculate rental income. You can use online tools like an income calculator to do this.
Qualifying for Mortgage
To qualify for a mortgage using rental income, you will need to provide the lender with related financial information. This includes a copy of your rental agreement or lease, your tax returns for the previous two years, your bank statement for the previous quarter, your real estate purchase agreement, and even pay stubs for the past month. The lender will then conduct an appraisal and tell you if you’re eligible for the loan.
If you’re searching for a reliable hard money lender in New Jersey, then we have the people for you. Global Capital Partners Fund LLC offers hard money loans, private money loans, asset-based lending, bridge financing, and commercial loans in 18 cities from 6 different states in the United States. You can request a quote on their website or contact them here.