The common myth among refinancing homeowners is that the mortgage industry will count the rental income they are receiving from their homes. In fact, rental income will not count toward the borrower’s qualifying income, even though the homeowner is reporting it on his tax returns, unless the subject property is a legal and conforming multi-unit property.
In some respects the mortgage industry appears reasonable with today’s underwriting guidelines, but on the other hand, some guidelines seem absolutely unreasonable. For example, late last year, one lender set a guideline that stated borrowers with rental properties could only count the rental income that is shown on their federal tax returns.
In other words, if a borrower purchased a rental property in June and the tax returns for that year only reflected six months of rental income, we would have to offset the full monthly principal, interest, taxes, insurance plus any other expenses claimed on the tax returns with just 6 months of rental income. Fortunately, this guideline was not adopted across the board by all lenders. It should also be noted that an underwriter may use the old standby formula of counting 75 percent of the rental income assumes 25 percent will cover expenses if a full year of tax returns are not available.
via Rental income may not help refinancers qualify for mortgage.