Don's answer is really great! I wish to add that lenders will typically discount rental income by 25% for operating expenses & repairs on properties < 4 units. Prospective landlords should consider comparing fair market rent vs. your mortgage payments before making their decision to rent.
I can't tell you how many landlords don't declare rental income because doing so would put their cash flow below water. This approach wreakes havoc on their debt to income ratios when they seek to refinance or buy another property with full doc loans.
The traditional solution has been stated income loans to offset undocumented rental income but Illinois has put new restrictions on the availability of these products allegedly to reduce foreclosure rates? It will be interesting to see how this new legislation impacts the number of rentals in foreclosure!... more