Qualifying for a mortgage loan can prove to be difficult when you just have one property; add investment properties and you can be in for a real treat. While the loan underwriting process can be arduous when you own multiple properties, it is far from impossible and can be fairly easy if you know what to expect.
First, it is important to report all of your rental income received in your tax returns. It may be tempting to leave some of it off but this is the the starting point for how loan underwriters calculate a borrower’s qualifying income. Then, be sure to notate the Fair Rental Days properly. If you have owned the property all year, put in 365 days. If you bought the property halfway thru the year put 182 days. This will affect you qualifying income.
Second, be sure to itemize your expenses. Insurance, mortgage interest, taxes, depreciation and HOA dues are all expenses that are added back into your rents received. Make sure they are itemized properly. If you had any one time expenses, (i.e. new roof, new windows, etc.), notate it on your tax returns and save the receipts. Mortgage loan underwriters may add these types of expenses back into the borrowers’ qualifying income as well.
Third, do not write off superfluous expenses. These expenses take away from your net income and if it is not one of the items mentioned above, it will not be added back in as qualifying income. From an underwriting standpoint, these expenses can be the difference of your investment property showing a gain or a loss which can hurt your ability to qualify.
Lastly, if your investment property is held in an LLC, be sure to make your mortgage, property tax, insurance and HOA dues payments from your LLC business bank account. Underwriting may be able to remove the mortgage from your debt to income ratio calculation in turn making it possible to qualify for a larger loan if needed.
Please note that these tips are not meant to be taken as tax advice and it is always important to talk to your CPA about the best way to file your taxes. This is more to help give you an understanding of how underwriting analyzes rental income from an investment property. If you have any questions regarding your real estate portfolio from a mortgage qualifying point of view, give us a call at 760-930-0569.