Is rental income on your first house a factor when buying a second house?

Lando22
Contributions:3

My sister and I bought a two-family 3 years ago. 8 months ago, she moved into my unit and we rented the other. I am now trying to buy a single family on my own but my broker is telling me I would carry the full debt of the house into my next mortgage (basically, making my debt too high to get another mortgage). Why isn't my sister's contribution and/or the rental income factored in? Is there anything I can do?
Getting a co-signer or taking my name off the two-family is not an option.

Flag content

January 20 - Boston

E-mail Share RSS

Answers (2)

Bob Willett, "SacRELender"
- 0.0/5.0
Contributions:194

Unfortunately most lenders today will not consider the rental income for qualifying purposes unless two factors are present. 1) you have a history of managing rental property and 2) you have 30% equity in the property being rented. If you have an established rental (that means showing on a federal tax return) with less than 30% equity that rental income will probably be factored in. There may be lenders in your area that will make exceptions to these rules, but this is pretty standard now. It's because of all the buy and dump deals that have gone on where buyers buy a new property while representing that they will be renting the other property out, and then short-sale or just stop paying on the other property.

Could your sister co-mortgage on your new purchase? This would be especially effective if you are using FHA because they look at thee total picture. If your combined incomes can handle the combined debt it just might work. Best of luck.

Flag content

January 20

Ed Lyon, "Newton EcoBroker"
- 4.7/5.0
- (8 reviews)
Contributions:21

Your sister's rental payments should be factored into the consideration, but the bank may consider her as an owner to be renting a unit to herself. It depends how your ownership is stated on the deed as to how they would view her rental. Is it a true 'arms length transaction'? You may have to prove to the bank with cleared checks, a signed lease agreement, etc. However, your payments on the first house may be an issue, as you are responsible jointly for the whole mortgage amount and a bank may look at the entire monthly payment for their qualifying purposes. Try several banks, as under writing guidelines may be viewed differently by various lenders. Good luck.