How to Use Your Investment Property to Qualify for Your Next Home Loan
If you own investment properties, you might be able to use them to help you qualify for your next home loan. Leveraging rental income can improve your debt-to-income (DTI) ratio and show lenders that you have the income stability needed for approval. However, it’s important to understand how to properly document your rental income to make the process as smooth as possible.
Rental Income Requirements: What Lenders Need
When a rental property doesn’t appear on your Schedule E (perhaps because it’s newly rented or recently purchased), lenders need specific documentation to verify the rental income. First, you’ll need a rental agreement to prove the property is generating income. In addition, lenders require either proof of at least two months of rent deposited into your bank account or a Form 1007 appraisal, which determines the market rent for the property. Once these requirements are met, lenders will apply a 25% “vacancy factor,” meaning they will consider only 75% of the verified rent as qualifying income.
Documentation for Established Rentals
For properties listed on your Schedule E, the process is simpler. Lenders use the rental income listed on your tax returns from the past two years to determine how much income can be used toward qualifying for a loan. If depreciation is showing on Schedule E, it can be added back to the calculation to prevent the property from showing a big “loss.” Accurate and complete documentation is key, as this reassures lenders that your rental income is steady and sufficient.
Simplify the Process with the Right Mortgage Expert
Navigating the rental income qualification process can feel like a maze, especially with different documentation requirements for various scenarios. Fortunately, working with a knowledgeable mortgage broker can make all the difference. If you’re considering leveraging your rental properties to qualify for a mortgage, Maor Lavi at Superior Mortgage Lending can help guide you through the requirements and paperwork. As an experienced mortgage broker and lender, Maor can simplify the process and ensure you get the best possible loan solution for your needs.
