Overview
Rental income can help mortgage qualification by increasing your income denominator in the DTI calculation -- but lenders apply a 75-85% vacancy discount to gross rent before counting it as qualifying income. Understanding these rules determines how much your rental properties actually help (or hurt) your mortgage qualification.
Rental income in DTI calculations by scenario
| Rental Income Scenario | Gross Rent | Qualifying Income (75% rule) | How It Affects DTI |
|---|---|---|---|
| Investment property mortgage payment < rental income | $2,000/month | $1,500 | Positive net rental income added to qualifying income |
| Investment property mortgage > rental income | $1,200/month rent; $1,500 payment | $900 (75% of $1,200) | $600 negative cash flow added to monthly debts |
| New rental (no history) | $1,800/month expected | $0 (no history) | Usually cannot count new rental income without 1-2 years of history |
| Short-term rental (Airbnb) | Variable | 1-2 year history required | Seasonal variation reduces qualifying income |
For investment property purchase, the property payment must often be covered by 75% of the monthly rent from that property (the 'self-sufficiency' or 'net rental income' test). If rent covers 75%+ of the payment, the net rental income can add to qualifying income. If rent is less than the payment, the shortfall adds to monthly debt obligations in the back-end DTI.
Key Points
- Existing rental income (with 2-year history on Schedule E) can be counted toward qualifying income
- The standard discount is 75% of gross rent to account for vacancy and maintenance
- New rental properties typically require 1-2 years of rental history to count in DTI
- HOA fees on rental properties are included in the rental property’s debt obligation
- Multiple investment properties create complex DTI calculations -- work with a mortgage broker
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How Rental Income Is Counted in DTI: Rules for Investment Pr
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