Refinancing rentals and second homes, answered plainly
How do lenders read rental income?
Plain answer
Lenders count rental income from your tax returns where there is a history, or from leases and appraisal rent schedules where there is not. They usually count only a set share of gross rent to allow for vacancy and upkeep, then subtract the property's housing payment. Depreciation reported on the tax return is typically added back because it is not a cash cost.
Last reviewed against the primary sources listed below.
Two ways rent is documented
- Tax returns: the rental schedule shows rent, expenses and depreciation; see Schedule E.
- Leases and market rent: used when the property has no full year of rental history.
Where the rules live
Fannie Mae's rental income section describes the calculation lenders follow for conventional loans.
Landlords also ask
Can I use rental income to refinance?
Yes, if it is documented by tax returns or leases. Lenders count only part of gross rent and subtract the property's costs.
Why does the lender count less than my rent?
To allow for vacancies and maintenance. The share counted is set by the loan guidelines.