Debt to income ratio, does NOI or Cash flow=Income?

[Jacob Grant]

After the period of time the bank requires to start counting rental income as income, do they use your NOI or your cash flow as the added income? I am wondering how it pertains to your debt to income ratio, particularly for a new investor looking to purchase their second or third properties.

[Ryan West]

It really depends. If you are applying for conventional financing for a home for you to live in (fannie mae, Freddie mac etc.) Underwriters are going to look at the cash flow from your tax returns in analyzing the rentals. If you have owned them less than 12 months and they are not on the tax return, then generally they will use 70% of the lease amount as the "income" netted against any mortgage payments. If you are applying to purchase another rental, then generally we will look at your DSCR of the most current year, and for us, as long as you DSCR to 1.10 or better then we're good.