Hi Faiz, The same rules will apply whether the property is paid off or if it has an existing mortgage. It sounds like you may have 2 years of income history on your tax returns but the second year is substantially higher than the first? If this is the case, most lenders would average the two when calculating your income. There are some conventional loan products that will allow you to use just one year of tax returns but it depends on many factors.
Alternatively, there is a category of loans called non-QM. This includes bank statement loans where income is calculated based on 12 months analysis of your bank statements and not taxes. This is most common for self employment situations and in most cases you need to show you have been in that line of work for 2 years (business license or CPA letteR). There are P&L loans where income calculation is based off of a P&L made by your CPA. There are also P&L loans where a self made P&L statement can be used. In that case, most guidelines would require 3 months bank statements to confirm the info. There is also DSCR but it sounds like this will be your primary residence. DSCR is awesome, but only works for investment properties. DSCR (debt service coverage ratio) qualifies you based on the asset itself cash flowing. You take the monthly rental income and divide it by the monthly payment (principal + interest + taxes + insurance) and if that number is greater than 1 you have met the basic requirement for DSCR. There are products that allow you to go under 1, but 1+ will get you the best LTV for a cash out refi.
Lots of options! Best of luck!
