How is net rental income verified by lenders on a residential loan application?

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If I have net rental income of $ 100 per month, that $ 100 per month will count towards my gross income figure on a residential loan application, but the monthly mortgage I pay on the rental does not count towards my monthly debt obligations (with respect to calcuating debt to income ratios), as long as I have a postive monthlt cash flow on the rental property,correct? How do lenders verify your rental income? What if I won’t be renting the property until after I move out of it, but I already have a signed lease application from my future renter – is that acceptable proof?

Hi
Year 2006 I purchased house ($ 625K). I hired mortgage broker and he applied loan for me. BB&T was my lender and loan was approved in 20 days. I put $ 125K for deposit and got $ 500K loan. Last year one of my friend told me that BB&T is not a wholesale lender. There must be a loan officer. I was wondering because from the begging to the end I was contacted by my mortgage broker. He was acting like BB&T was a wholesale lender.
I requested full documents from the lender and I reviewed it. When I saw Loan Application I was confused because it was not 1003 Loan Application. It was Bank’s Retail Loan application. I am not sure but I think that retail loan application is for personnel loan, student loan, or home equity loan etc NOT FOR RESIDENTIAL PURCHASE LOAN… * I said I am not sure.
And my loan is-5 years Installment loan- That means I pay $ 3400 for 59 months and 60th I have to pay about $ 400K. On settlement day I was out of town and mortgage broker told me that my father could sign the settlement documents if I give him on authorization (Power of attorney). So we did. I believe my father didn’t know what he was signing.
Q.1 They (Lender) don’t have to use 1003 when we apply for residential home loan?
2. Is there any violation that I was not contacted by Bank’s Loan Officer or others from the Bank?
3. What do you think about my loan program?
4. Refinancing is my best solution?

P.S. When I applied loan, mortgage broker got all my information on blank paper. He said “I will fill loan application out for you”.
I called mortgage broker….NO ANSWER
Heard rumor that he went to jail.

Thanks.

11 Comments
  1. Reply
    Astrolion
    February 11, 2011 at 5:33 pm

    It can be verified by your tax return or in the case of a new rental, they will look at the dollar amount of the lease less any mortgage payment, taxes and insurance and use that as the net rental income.

  2. Reply
    Mother Bear
    February 11, 2011 at 5:59 pm

    No, the proof you need is your tax return where you claimed it as income. A signed lease is NOT collected income. They don’t care about what you think you can get or might get or dream of getting….only what you can actually document as money received.

  3. Reply
    Annie Mation
    February 11, 2011 at 6:32 pm

    It all depends on the lender,
    some take your gross rent x vacancy factor (we used 90% or 75%) – mtg PITI pmt.
    Vacancy factor can fluctuate by the number of units you own.
    Some will take the bottom line number off your tax returns.

    Last place I worked would give you credit for rental you are moving out of with signed lease and copy of sec dep/first mo rent.

  4. Reply
    mscarriem
    February 11, 2011 at 7:18 pm

    the mortgage debt is part of your ratio so is tax and isurnace on the property, so lets say you pay $ 500 for mortgage plus $ 100 for insurance. ( YES a lease agreement would work). You are paying $ 600 a month which is calcualted against your debt. NOW you collect $ 800 for rent, they will only calculate 75% as net income SO, you net income for the prperty would be 75% of $ 800 which is $ 600 and you pay $ 600 for your mortgage with tax and insurance, so there is no income for the property it would be a wach, no income no cost, Hope that helps

  5. Reply
    highrisespeed
    February 11, 2011 at 7:26 pm

    My bank that I have my personal mortgage with only counted 75% or my rental income towards my income. When they look at your debts the rental mortgage will be counted.

  6. Reply
    kemperk
    February 11, 2011 at 8:24 pm

    by their auditor from what you send; pure and “simple.”

  7. Reply
    BabiesDaddy
    February 11, 2011 at 8:47 pm

    Gross rent multipied by 75% minus your mortgage payment and taxes and insurance gives you “net rent” when applying for a mortgage. Standard procedure with all lenders. If the net rent is positive then it will count as income when figuring your debt to income ratios. Rental income is verified using schedule E of your tax returns. Many banks are not accepting rental agreements any longer as proof. These guideline changes have taken effect only recently.

  8. Reply
    Real Estate Guy
    February 11, 2011 at 8:56 pm

    They usually take your lease, use the gross monthly income and take 75% of the gross income to be used as rental income. From this they sub the actual expenses. What is left over (if any) is income. If it’s less, then it’s another debt (like credit cards, etc).

  9. Reply
    Kevin C
    February 11, 2011 at 9:02 pm

    Banks don’t use 1003’s, only Mortgage Brokers/Lenders. It seems you have a 5 yr balloon loan. It will be due in five years. You may be able to refi and get a better rate in the current marketplace. You need to check your area for the limits on FNMA or FHA loans.

  10. Reply
    Killer Queen
    February 11, 2011 at 9:48 pm

    BB&T must be retail lenders not wholesale lenders. Wholesale lenders would be mortgage brokers who don’t lend money, they just find banks who will. Look at the chart on this link and you can see who does what.

  11. Reply
    Independ"ant"
    February 11, 2011 at 10:31 pm

    Loan officer, mortgage broker, loan originator are the same person….people just use different titles.

    Mortgage companies do not fund the loans….they act as the 10cent middlemen out to get as much money out of you as they can. They have to send your loan application(with all the necessary paperwork) to banks or finance companies who will approve you for a the loan.

    1. Usually….maybe its could be a new type of loan, they probably did use it but your forgetting.
    2. Nope…usually they are lazy about calling especially after the papers are signed….This is why its best to get loans from a local Bank….you can call their supervisors who will make them return calls. At 10cent brokerage firms even Wells Fargo/Wash mutual you have riff raff working for them….they just hire someone who can sell.
    3.It sounds like a balloon payment type of loan…if you have saving and plan on paying it off right away great…otherwise you have to refinance or go into forclosure. I personally think its a stupid loan unless you are rich or are buying cheap property.
    4. Refinancing will be your only option if you can’t payoff the last(balloon) payment. Again, this is why its best not to do this type of loan. Mtg. brokers know you will have to refinance which means more money in their pockets.

    Your post is a little off.
    It doesn’t matter if he jotted your info down on the wall as long as the application were filled out properly later.

    I guess your needing to refinance that is why you’re calling him?

    If so you don’t need him to do so….go to a local bank and ask to speak to someone in the loan dept about refinancing your home.
    If you can’t qualify with them(credit/income problems)….then go to another brokerage company that has been in business more than 15-20 yrs in a nice area of town.

    I used to be in the business and know how criminal minded and useless they can be.

    Get a 30 yr. fixed rate loan…you can pay it off early if you want.
    This is what you should have been placed in from the get go.

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