How is DTI calculated when you have a rental property? DH and I have just signed a year lease on our house, and are interested in purchasing another house to live in. If the mortgage payment is $3000 and we have rented for $2500, is the total mortgage debt included in our DTI $500 or is it more complicated than that?
From my research you will be required to have 2 years of tax documents detailing the rental income consistently to be counted as income for DTI.
Yup, 2 years of tax returns showing the rental income & expenses (some situations 1 is acceptable)... or if you are vacating your primary residence and converting it to a rental, then you can use the rental income to offset it's housing expense (can't add qualiyfing income, but offset - as in cancel out $ for $ - the housing debt) if you are being relocated for work to another area which is not within a reasonable distance of the home being vacated (FHA & VA only), or have sufficient equity per an appraisal (30% equity for conventional, 25% equity for FHA, VA doesn't have a defined figure so most lenders use 25%).
As far as figuring out how much of the rental income can be used, if it's conventional then 25% of the amount on the rental is deducted for vacancy & repairs... FHA it varies depending on where the property is. FHA has Vacancy Rates that are published, the areas covered by the Denver Homeownership Center (HOC) are tough to find, so the direct link is http://www.fhaoutreach.gov/FHAFAQ/answerPre.jsp?solutionid=AAVA-2F1TJK.