How do lenders see income from rentals?

Question

Mary lou L. · Answer

Bob B.

That is what I was wondering.

Does taking every single deduction/exemption and showing a loss make it more accurate?

Or can I just show the total income from rents and call it a day?

Edit: I do understand the banks position on wanting to make sure I can qualify for the loan. But am I shooting myself in the foot by showing a loss when I do not need to? As far as getting to 0 on the taxes owed and then keep going deducting more expenses from the rental income to show a loss?

My situation is kinda unique as I have non taxable income (Veterans Disabilty) so taking the deductions wont do anything for me as far as reducing taxes. (at this point I just take my exemption and my tax liability was zero before adding anything from the house.

I also let my ex take the exemption for our son because he can use it to reduce his taxes, If I took it on mine it would do no good.

Just trying to position myself for future loans/refinance options.

Albert Bui · Answer

When a bank means the "income was too lower after deductions," it means your actual real income was too lower to qualify for the payment.

Certain deductions you take lower your qualifying income and other default IRS provided tax deductions are just for tax purposes. You'll need to distinguish between what deductions affect your qualification and which are irrelevant.

- full disclosure: I do work as a loan officer day to day

Albert Bui · Answer

beyond the nerdy technical answers you need a loan officer who actually understands these other resposes youre getting in the above responses like "cash and non cash expenses."

A lot of loan officers do not know what that means they just follow their self employed income sheet formulas. We're given all sorts of these sheets like rental income calculators, self employment calculation sheets and such. I do not use these I just read them to understand what the underwriting guidelines are trying to do with regards to risk analysis rather than blindly using their formulas.

Its very easy to mess up a borrowers income if you try to use these sheets.

Michael Worley · Answer

Any deductions you take are either Cash Expenses or Non-Cash Expenses. If they are NCE then they are add back to your income (depreciation, depletion, amortization, etc). If they are CE then they are deducted from your income because they are actual bills you pay.

There isn't any other way a lender will look at it. Lenders have different tolerances for risk, but all lenders should get to the same income / expense numbers if you are presenting the facts accurately.

Linda Weygant · Answer

There was a similar discussion here:

http://www.biggerpockets.com/forums/49/topics/1917...

The opinions I expressed there apply to your situation as well.

Bob B. · Answer

You can show whatever you choose, but if you are not disclosing everything then you are not accurate. If your rental income is $8,000 and you show $1,000 net then you don't really have much income.  If I understand the California life style, most people spend that much at Starbucks in a  year. lol  Not much left for the bank.

Bob B. · Answer

I am not understanding why you would not take all the deductions associated with a property?

Each bank will look at rental income differently and most want to see at least 2 years of rental income.

Chris Thorgesen · Answer

In my situation, I had two different lenders take opposite approaches.  The first saw that I had not claimed any after repair income from my rentals and told me my debt to income ratio was too high and that they would not lend.  The other, more astute lender, saw that I had had these rentals for less than a year and that I was offsetting my rental incomes with rehab costs on other buildings (in part) to keep the taxes down.  I merely had to submit a letter stating that the costs which outweighed the incomes were a one time rehab project (for that building) and I received funding.