Can You Use Rental Income to Qualify for a Duplex?

Qualifying for a Mortgage with Rental Income

If you've been looking into investment property at all, you've probably heard something about the opportunity investors have to use anticipated rental income as a way to help qualify for a loan.If you're reading this article, you probably have a few questions. Is this accurate information? Can you actually use anticipated rental income to qualify for a mortgage? If so, what exactly does this mean?

Is This a Real Possibility?

Here's the short answer: yes. As a prospective duplex or investment property owner, you absolutely do have the opportunity to use anticipated rental income as stated income when qualifying for a loan.However, there is some important information you'll want to know before you start making too many assumptions. For instance, while you'll be able to use a portion of anticipated rental payments as stated income, you will not be able to use the entire amount.

To Use Rental Payments as Anticipated Income, Does the Property Need to Have a Current Tenant?

Thankfully, to use rental income as a way to qualify, it is not necessary for the property you're purchasing to have a current tenant. Lenders are willing to consider rental income based on what the property is expected to rent out for. Typically, this process includes a professional assessment of the property.

How Much of the Rental Income Can I Use to Qualify?

Once the anticipated rental rate has been determined by a professional assessment, most lenders will allow for the use of approximately 70 to 75% of the expected rental payment as stated income. This percentage is determined by factoring in the expected cost of repairs, a possible vacancy rate, and so on.

However, even when just 70% of the rental payment is considered, the result can be tremendous. Assuming a property rented out for $1,000, a prospective buyer could add $700 per month to their stated monthly income.

For a household earning $50,000 per year, an added $700 in monthly income could make a tremendous difference in qualifying for a home. For instance, according to Zillow's affordability calculator, a family or individual with no debt and a $10,000 down payment can afford a home worth about $279,000. However, when $700 in monthly rental income is added in, that amount goes up to $334,000.

Remember, the amount available for use in the qualification process varies by lender. Be sure to consult a professional before making a decision on your purchase.

Conclusion

Remember, like purchasing any home or property, deciding to buy an investment property is something that should be carefully considered. If you'd like to learn more about the unique opportunities and challenges associated with a duplex or other investment purchase, please feel to reach out to us for a free consultation. We'd be happy to talk through your concerns, your expectations, and your goals.