I am looking for information as to what rental income can be used towards determining your DTI ration to qualify for a new loan.

Asked by LDEXTER, 55378 Fri Nov 4, 2011

I currently own one home which is my primary residence that I live in. I purchased my first investment property approx 6 months ago and have a 1 year signed lease in which I clear about $600 per month after mortgage and insurance etc. I am wondering if I will be able to use any of this rental income towards determining my DTI ratio to qualify for a new loan. I am hoping to purchase another investment property in the next few months if possible. I have heard different things...do you need 2 years history of income on tax return or can you use 75% of income. If there are any loan officers out there that can give me guidance that would be helpful. Thank you.

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, ,
Fri Nov 4, 2011
HomePath financing is Fannie Mae financing, so it is likely you'll be able to use the rental income without a 2-year landlord history. We offer HomePath financing in Minnesota.

And FHA does *not* have a 2-year landlord requirement. The FHAOutreach.gov website is down now, but the guidelines (updated as of March 2011) can be found at http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4155.… and it says:

Rent received for properties owned by the borrower is acceptable income for qualifying as long as the lender can document the stability of the rental income through a(n)
· current lease
· agreement to lease, OR
· rental history over the previous 24 months that is free of unexplained gaps greater than three months (such gaps could be explained by student, seasonal or military renters, or property rehabilitation).

The borrower can provide a current signed lease or other rental agreement for a property that was acquired since the last income tax filing, which is not shown on Schedule E.
In order to calculate the rental income
· reduce the gross rental amount by 25% (or the percentage developed by the jurisdictional HOC) for vacancies and maintenance
· subtract PITI, and any homeowners’ association (HOA) dues, and
· apply the resulting amount to
- income, if positive, or
- recurring debts, if negative.
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, ,
Fri Nov 4, 2011
Although FHA is solely for primary residences, the 2 year income requirement also applies to it as well. Just a general FYI for anyone else that may read this question and wondering.
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LDEXTER, , 55378
Fri Nov 4, 2011
I am most likely looking at Fannie Mae properties with homepath finanching if that helps clarify things. My credit is good, I believe it it is in the upper 700's.
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, ,
Fri Nov 4, 2011
It depends what loan program you are applying for. Freddie Mac loan programs require a 2-year landlord history, however Fannie Mae loan programs do not and will accept a signed lease/rental agreement if you have acquired the property since the last tax return has been filed. Fannie Mae will give you credit for 75% of the amount being paid per the rental agreement, that goes for new purchases where an existing renter is in place too. Be aware that lenders can impose their own guidelines, called "overlays", on top of Freddie & Fannie's, so even if a lender offers Fannie Mae loan programs they may still require a 2-year landlord history like Freddie Mac's loan programs do. So keep that information in mind, and ask the loan officer ahead of time before you have your credit checked.
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