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Thursday, 22 October 2015 05:00

Buying a Rental Property? Let Your Rental Income Earn You a Mortgage Loan

Take advantage of the rental income to qualify for a new mortgage

house rentAre you adding more properties to your rental portfolio? If so, you can take advantage of the rental income to qualify for a new mortgage. You can get great deals on mortgage depending on the gains or losses from your rental property income and the tax returns you filed recently.

In order to achieve favorable credit, you can make use of close to 75% of the rental income depending on your past record.

Here are some tips to secure a mortgage if you are buying a rental property:

Schedule E Makes a Lot of Difference

Schedule E included in the Form 1040 is used to report income generated from rental properties. In case you face losses for a fiscal year after filing the tax returns, qualifying for a mortgage for buying a rental property can be very tough. Losses are viewed as a liability. Which means that the minimum qualifying criteria can be tough to achieve.

Normally, lenders consider the past two year's rental property income to average out the figures. So, average loss or gain is quite important in case you want to qualify for buying a rental property.

Do the Math Yourself

When it comes to buying a rental property, it is not as simple to calculate the average figures. Gross income is not the sole criteria. Insurance, taxes and lender payments in addition to appreciation/depreciation can be other relevant factors. Rental property maintenance charges is another factor that comes into play. The depreciation in the rental property will have to be taken into account to determine the time frame when the home starts to generate meaningful rental income. This is the time frame lenders will use to ascertain the real mortgage value component.

If you have a rental property in your portfolio that does not carry mortgage, it most likely qualifies as gain in the Schedule E. while buying a rental property through this route, lenders will consider all the rental portfolio.

Tips to Finance Rental Property

  • Lenders have to consider vacancies by accounting for only 75% of total rental income for mortgage.
  • If you have more than 5 rental properties all on rental home loans, lenders may not be too willing to finance more or will charge a premium.
  • All the lease rental copies are required for processing.
  • In case there is refinancing, you have to reduce the average rent.
  • In case new agreements are in place for rent, lender will take into account the old tax returns for historical records purpose.

How Gross Rental Income Impacts Your Mortgage Qualification

The ratio of income to debt is the most vital component of the mortgage qualification. For a favorable credit dispensation, you have to maintain a good credit score, have low but regular mortgage payments, minimum personal loans (including child support and student loans) and low financial liabilities.

Buying a rental property from your current portfolio can be overwhelming. You have to not only maintain your current obligations but also add to the financial implications carefully. So, take a good step back and consider investing only when you have the appetite for risk.

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About Rental Home Financing:

Rental Home Financing, as the best mortgage lenders we originate rental home loan products and cash out refinance investment property loans as the best investment property refinance lenders. Commercial blanket loans are available with a commercial purpose to suit your needs.

Also, as DSCR loan specialists, we are currently authorized to make such loans in most all areas of the United States. Specific circumstances will determine whether we have the ability approve/close portfolio rental home loans in your state(s). When you are ready to get a mortgage for rental property, we are ready to serve you.

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