How Income from Rents Affect your Mortgage?

As a matter of fact, the relationship between rental incomes and mortgage is one of the most essential. This is mainly because lenders closely monitor your rental incomes to determine whether you qualify for mortgage or not. If your rental income is high, you are deemed to be better off when covering for repayments.

Rental incomes are not only useful to help you qualify for mortgage but they also pave way for better loan terms with your lender. Therefore, income received on rents plays a major factor in determining your ability to pay off the risk or act as a defaulter. So, you need to prepare in advance before opting to qualify for mortgage through your rental income.

Here are a few ways to help you understand how rental income affects your mortgage:

  • You can opt to deposit rental income into the bank each month/year. A proof of income letter will also be needed to submit your lender in order for the process to start. Additionally, you can make a separate bank account titled rental incomes so that it is easy to distinguish in your statements.
  • You can draft a rental property expense list to show additional expenses in a year that is deducted from your rental income. This will give the lender a better picture of your actual income from rent. Utility bills, homeowners insurance and other taxes/expenses should be disclosed with copies of bills in order to ease out the mortgage application.
  • In case of loss or rental income, gather all documentation to highlight the reasons. Sometimes, the average of your rental income may fall due to valid reasons, such as: Renovations. No matter what the reason is, the lender will need an explanation with fact stating documents. If you fail to do so, it can affect your mortgage application ineffectively.
  • Your lender will require a lease agreement signed by your tenant. This is because, in most cases, lenders will not consider rental incomes if the tenant is not on lease. Therefore, if you have tenants (not currently on lease) have the rental agreement signed if possible.
  • If applicable, pay down existing mortgage loan. This is mainly because most lenders would prefer to qualify mortgage happily if you own at least 25 percent of the equity on your rental home.

A lender will most likely make use of debt service coverage ratio in order to examine your rental property. Generally, lenders prefer to see a return of more than one percent on the rental property.

As a borrower, not traditional means of refinancing a home may sound daunting. Therefore, rental incomes or properties with good yielding can be good news when trying to qualify for a mortgage loan.

Lenders usually consider the income (current) of the borrower when evaluating an amount to lend. Hence, if you own several properties, building and apartments on rent, the income received may play a vital part in funding majority of your expenses.