Debt to income and rental properties

[David Soest]

If you buy a rental and you profit say $250.00 a month or even just break even, does the mortgage count against your debt to income ratio or does the rent cancel out the mortgage payment?

Thank you.

[Albert Bui]

Originally posted by @David Soest:

If you buy a rental and you profit say $250.00 a month or even just break even, does the mortgage count against your debt to income ratio or does the rent cancel out the mortgage payment?

Thank you.

 I would be able to use rental income whether it was on your tax return or not. Both Fannie and freddie (as of 10/26/15 or after) now do not require 2 years landlord experience (fancy speak for 2 years rental income on tax return) any more to use your rental income.

No one here has mentioned it correctly but its key to note that "rental income," calculation is different on primary occupied properties than it is from non owner/investment properties.

So to answer your question correctly as a non owner/investment property, yes it does offset your mortgage payment. If this number is positive its added to help you as qualifying income and if the number is negative it counts as a liability to be qualified for like any other liability such as a car loan or credit card,etc.

As a primary, lets say you have a fourplex and live in one unit and rent the other three units. You can use rental income as well but its added to your income column and NOT netted against the mortgage. What does this mean? Well short to say its not as effective as being "netted." 

If you had a 1000 mortgage payment you would need around 2222 gross income to qualify for this payment (assuming 45% max debt to income) however if your 1000 mtg payment had 1000 income it would be net ","0 which means you dont need to qualify for anything. So if income is added to the income column like in the case of a primary residence fourplex scenario then you'll need around 2.22X times whatever the payment is (in this case $1000) to qualify (assuming max 45% DTI). Hope that makes sense its the most simple way I can put it.

Others here have answered a question already that pertains to "how to calculate the rental income." This is another one that varies. If you have 1 year or 2 year of tax returns we'd need the average of 2 years or the most recent year / 12 months. If you dont have any tax returns filed yet we'd use 75% of gross minus your PITIA (principal/interest/tax/insurance/assessments). Easy right? 

Thats everything in a nut shell. Let me know if you have any questions on it.