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Can I use rental property income as proof of income for a mortgage?
- Thread starter Lewisghjk
- Start date
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LdiJ
Senior Member
That is not a legal question, that is up to the mortgage company. You would need to ask them. In general however, at least the profits on rentals would count as income but whether or not those profits would be sufficient to qualify for a mortgage is unknown.
quincy
Senior Member
If you own rental property, the property can be (and should be) listed on a mortgage loan application to show your assets. If you have mortgages on your rental property, that will be considered when determining if your existing income (including income from rent) qualifies you for additional loans.
Taxing Matters
Overtaxed Member
The TLDR versions of my explanation below: most lenders will require disclosure of ALL your assets, liabilities, and income. Federal law does however limit what the lender may request. Lenders want to have as complete a picture of your financial condition as possible and thus they will typically ask for information on your rental property, the mortgage, and the rental income.
Most mortgage lenders will require a borrower to disclose all of his/her assets, liabilities, and income to make a lending decision. By a federal law know as the Equal Credit Opportunity Act (ECOA) mortgage lenders may not discriminate against borrowers or applicants based on the following: race, color, religion, national origin, sex (which, under Supreme Court decisions includes gender identity), Age (provided the person is at least old enough to be capable of entering in a contract under the applicable state law), reciept of income from public assistance programs, or due to the applicant's good faith exercise of any of their rights under the federal Consumer Credit Protection Act (CCPA). The federal Consumer Financial Protection Bureau (CFPB) is the primary federal agency that enforces the ECOA. The CFPB's regulations limit some of the information that lenders may require in order to help ensure that lenders do not illegally discriminate. These rules are explained in detail and in plain language in the Federal Deposit Insurance Corporation's (FDIC) guide for its bank examiners. Aside from those limitations (and any limitations in the applicable state law) the lender is free to request any relevant information, which would include income information about all your income, assets, and liabilities in order to determine your ability to pay off the loan.
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quincy
Senior Member
What is bolded above is key. Lenders want to know that you can pay them back.
Bali Hai Again
Active Member
When did that happen? After the 2008 meltdown?What is bolded above is key. Lenders want to know that you can pay them back.
adjusterjack
Senior Member
I certainly hope so.
quincy
Senior Member
The lending by banks of money for mortgages to those who really didn’t qualify for the loans certainly played a major role in the 2007-2009 recession. It would be sad if lending institutions learned nothing from those years.
Taxing Matters
Overtaxed Member
The banks and other mortgage lenders thought real estate would always rise in value so at worst they'd have to foreclose on the property to get their money back. Shareholders of corporations also fell into that trap. I'd like to say that it wouldn't happen again, but what happened in 2008 has happened before and will likely happened. The details change from one financial crisis to another, but the belief that a strong real estate or market won't ever go down is one of the common factors. It seems to me that institutional knowledge seems to last only as long as the CEO does, and today corporations ditch CEOs at the drop of a hat. Most of those CEOs that were in the job in 2008 are now gone, and their replacements might not have the same memory. Human nature being what it is my bet is that this situation will be repeated again, fueled by that same belief that whatever market they are in can't possibly go down.
quincy
Senior Member
I think most lenders are better aware of the high risks of lending money to unqualified loan applicants. And I think many people and most lenders have been educated on the risks of adjustable rate mortgages.The banks and other mortgage lenders thought real estate would always rise in value so at worst they'd have to foreclose on the property to get their money back. Shareholders of corporations also fell into that trap. I'd like to say that it wouldn't happen again, but what happened in 2008 has happened before and will likely happened. The details change from one financial crisis to another, but the belief that a strong real estate or market won't ever go down is one of the common factors. It seems to me that institutional knowledge seems to last only as long as the CEO does, and today corporations ditch CEOs at the drop of a hat. Most of those CEOs that were in the job in 2008 are now gone, and their replacements might not have the same memory. Human nature being what it is my bet is that this situation will be repeated again, fueled by that same belief that whatever market they are in can't possibly go down.
The short-term adjustable rate loans, with their initial low interest rates, made it possible for people previously priced out of the real estate market to purchase their very first homes. Unfortunately, at the same time these short term loans were adjusting, interest rates had climbed. Homeowners could not afford the mortgage payments at the higher interest rates and were forced to sell their homes or default on their loans.
As a result of the 2007-2009 recession, better regulations were put into place to prevent another financial crisis of the type experienced then. But, of course, there are far too many examples of humans failing to learn from the past. So who knows.
Bali Hai Again
Active Member
I think the major learning from that whole fiasco is that the government (you and I) will be there to bail out these clowns with golden parachutes no matter how profound they are apt to screw things up. Current home buyers are now faced with high prices and interest rates after more than a decade of free money.
quincy
Senior Member
There was no bailout of the “clowns” when Silicon Valley Bank collapsed in 2023 (followed by Signature Bank and First Republic). Instead, bank management and investors were forced to shoulder the losses rather than the bank depositors, whose money was protected by the FDIC.
In 2008, the problems stemmed from a rise in interest rates that showcased bad investments by banks both large and small, primarily in the housing market. With the 2023 bank collapses, SVB et al were smaller banks with not enough money on hand to pay their depositors, but there was no subsequent government bailout of these banks and no global recession.
Trump’s 2018 rollback of regulations for smaller banks appear to have played more than just a minor role in the bank problems experienced in 2023.
Some lessons seem to have been learned by some in powerful government positions. Others who have been in powerful government positions failed to learn anything.
adjusterjack
Senior Member
Some of us are old enough to remember the savings and loan crisis of the 1980s.
Savings and loan crisis - Wikipedia
The only thing we learn from history is that we don't learn anything from history.
quincy
Senior Member
Well ... we tend to learn enough to make the same mistakes but in different ways. Haha.