Are lenders able to use market value rent to calculate DTI

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Are lenders able to use market value rent to calculate DTI

Dustin Hedrick
Member since 2020 · 3 posts · 0 votes

Hi everyone, 

I have bought a triplex and am looking to refinance. The rents are below market value and I cant renew their lease until August. I would like to refinance before then. Just wondering if lenders are able to calculate market value rent as opposed to the rent we are actually receiving. 

Thanks,


Dustin Hedrick

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Stephanie MedellinBusiness Member
Mortgage Broker · CA · Member since 2014 · 1k+ posts · 644 votes
5y

@Dustin Hedrick  If this property is already being reported on schedule E on your taxes, the rental income will be calculated from Schedule E.  If you purchased it recently and it's not yet on your taxes, then 75% of the lease will be used.  You won't get credit for a higher market rent if the tenants aren't paying that amount yet.  That being said, this doesn't mean you won't qualify for a refinance.  As long as your overall debt to income ratio is sufficient, rental properties can show a loss and you can still be approved. 

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  • Torrell Palmason
    Lender · Winlock, WA · Member since 2020 · 124 posts · 82 votes
    5y

    Unfortunately while they do look at current market value, lease will take precedent as this is what you actually receiving. Best advice is hold until you can renew lease or if you need to get refinance before then they will have to use your current leases.

    Best of Luck!

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  • Stephanie MedellinBusiness Member
    Mortgage Broker · CA · Member since 2014 · 1k+ posts · 644 votes
    5y

    @Dustin Hedrick  If this property is already being reported on schedule E on your taxes, the rental income will be calculated from Schedule E.  If you purchased it recently and it's not yet on your taxes, then 75% of the lease will be used.  You won't get credit for a higher market rent if the tenants aren't paying that amount yet.  That being said, this doesn't mean you won't qualify for a refinance.  As long as your overall debt to income ratio is sufficient, rental properties can show a loss and you can still be approved. 

    [email protected]
    Stephanie Medellin, Loan Factory58 Reviews
    WebsiteView Page
    1Reply
  • Timothy Hero
    Lender · United States · Member since 2020 · 1k+ posts · 499 votes
    5y

    Lenders go off the lower amount for market rent and value. If market rent comes in at $2k, but you're receiving $1,700, they'll go off the  $1,700.

    If market rent is $1,700 and you're receiving $2,000, they'll go off $1,700.

    I broker for a list of lenders in the commercial/non-qm space and it's the same for all of them.

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