Can Use 75% of Rents for Income; 85% for FHA

We discussed rental income in previous blogs and had questions in regard to how much of the rental income we can use.

For a refinance, we use the income from the 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 lease and canceled rent check) and a “rent survey” to verify that the rent is not artificially inflated.

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.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646