Route 05
Rental income
The property qualifies, not you. Market rent is compared with the full housing payment to produce a debt-service coverage ratio.
Who this is
- You are buying or refinancing a property you will not live in
- You hold property in an LLC
- Your personal returns are complicated and the property’s numbers are not
What you hand over
- A lease, or an appraiser’s market-rent schedule (Form 1007)
- Evidence of reserves — usually several months of the housing payment
- Entity documents, if you are borrowing in a company name
How the figure is worked out
Qualifying rent is divided by the property’s principal, interest, taxes, insurance and association dues. A ratio of 1.00 means the rent exactly covers the payment. Most programmes want more than that, and price by how much more.
Do the arithmeticWhat trips this route up
- Some programmes deduct a vacancy allowance before the ratio is worked out; some do not. It moves the answer.
- A short-term-let history is treated very differently from a signed twelve-month lease.
- The ratio says nothing about maintenance, management or a month with no tenant.
Where it leads
Programmes this route commonly unlocks
Demonstration form
Tell us about your rent
Nothing on this form is sent anywhere. On a working site it would reach a loan officer with the route you arrived through already attached.
The other four
Most files use more than one
- Paystubs and W-2sThe straight strand. Salaried and hourly income, evidenced by paystubs, W-2s and a verbal verification of employment.
- Bank statementsTwelve or twenty-four months of deposits, with an expense factor applied. Built for owners whose tax return is written to minimise tax, not to qualify for a loan.
- Profit and lossA CPA-prepared profit-and-loss statement, sometimes with 1099s alongside it. The shortest route when your accountant already has the numbers.
- AssetsNo income used at all. A verified pool of liquid assets is divided across the term to produce a qualifying figure. Common for retirees and for people between ventures.