We discussed rental income in previous blogs and had questions in regard to how much of the rental income we can use.
How Rental Income is Calculated for Refinancing
For a refinance, we use the income from Schedule E on a borrower’s tax returns, irrespective of market rents. We can add back “non-cash” expenses like depreciation.
For conventional purchases, we use 75% of future rents or market rents, in most cases. This allows for a 25% “vacancy factor.” Lenders require proof that a property is rented (copy of the lease and canceled rent check) and a “rent survey” to verify that the rent is not artificially inflated.
Using Rental Income for Conventional and FHA Purchases
FHA allows us to use 85% of the market rent from non-occupied units in 2 to 4-unit properties. FHA does not finance non-owner single-family residences.
