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Rental property income?

We now live in a small home in which we owe 240,000. We want to buy a bigger house to live in and rent the smaller one. Will the rental income count towards a second mortgage? We make around 110,000.
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August 03 2013 - Great Bridge East
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You need to explain your entire scenario to a loan officer and let them explain your options.
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August 17 2013
Probably not.  You will have a very short rental history or no rental history in the home you plan to keep as a rental.  Once you have a history, the income would count toward your other mortgage. 

Discuss this with a mortgage lender/banker.  Depending on the loan amounts and downpayment, you might qualify without the rental income.......or you might change plans entirely.
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August 17 2013
We have lenders that will use 75% of the rental income toward your qualification on your new home. You have to have a signed lease agreement and a cancelled check from your tenant showing 1st month rent and security deposit. 

Feel free to contact me to t discuss your situation. 
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August 15 2013
Paz,

The lending requirement would be that the trailing property have at least 30% equity, a rental agreement in force AND proof of it on a tax return, preferably for 2 year in order to have it considered as income.

The lender prefers to see this history as a way of off setting the new cost of the new mortgage.
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August 15 2013
Yes it does.   As long as you have a sign 1-2yr lease with their financial backups showing credit worthiness and some liquidity, you should be golden.  At the end of the day, the bank just want to make a good business decision.   There are some additional things that banks care about:
How much equity do you have in current home?
How long have you made 110k collectively?
How much savings you have?
How much other debt you have?
If these are all positive, I feel you should be good.
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August 15 2013
Great question. You would have to be able to demonstrate that the rental income is a steady reliable stream of income in order for it to qualify. Usually supplying tax returns showing such will suffice. If the rental scenario is a new arrangement than it likely would NOT count towards your debt to income ratios. There are other factors that could also apply to your situation so it would be highly advisable to speak with a mortgage professional about the specifics of the new loan type that you wish to qualify for.
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August 14 2013
There are many variables here. Many loan types will require that you have rental history and a large number of reserves in the bank if you are going to keep that one and rent it. The rental income will be counted toward the debt reduction on the first, but you wont typically see a 100% credit for it...so your loan amount with typically be reduced by a 20% deficit if that makes sense. Plus, the reserves to cover both mortgages for a defined period of time.  You'll probably need a lease in effect before the new loan closes too.

Best bet is it get on board with an agent and lender who can help you make a plan. I live and work in the Hickory school district and would be happy to discuss.
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August 13 2013
Good morning PazStutzman,

This is an excellent question, and the answer is maybe. If you have enough equity, usually 30% or more, than you have a real chance of using the rental income. Also, if you have a history documented by tax  returns of renting another home in the past 2 or 3 years, you have a good chance of using the rental income regardless of equity position.
However, without one or both of these circumstances, it will be difficult, if not impossible, to use the rental income to offset your DTI figures.
Best wishes, Jim
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August 03 2013
 
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