Question by Jessica C: How does rental property affect your income to debt ratio?
We have made an offer on a new house. We are considering turning our current house into a rental property and are extremely confident it would rent quickly.
I guess my real question is this: will the rental income “wash out” the debt owed on the house, or when we get our financing in order will they just look at the debt owed on the current mortgage?
Thank you!
Best answer:
Answer by loanmasterone
The mortgage you are paying on your current home will count against you as a debt on your credit report. It will have an affect on y our debt-to-income ratio.
The rent you get from renting the house will count as income, however most lenders only count 75% of the rental as income. The other 25% is for incidentals and for potential vacancies that might occur.
If you plan to use the rental as income then you should have a rental agreement of some sort as proof that you have a renter.
I hope this has been of some use to you, good luck.
“FIGHT ON”
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It depends on what kind of loan you are getting. If you plan to get a Fannie Mae or Freddie Mac loan then you will have to qualify with both mortgage payments but none of the rental income unless you have 25% equity in the property. You will also need to have 6 months worth of both mortgage payments in reserves/savings.
Many people don’t know that the guide lines were changed over a month ago because people were buying new homes and providing lease agreements for their current home. Once they closed on the new home their rental went straight into foreclosure.