Rental income included in DTI calculation?

[f1maxis]

If I own my own home and decide to purchase another home for my primary residence (keeping and renting the previous home), can I include the rental income that my old home generates as income when calculating DTI ratios?  Does it matter if your new home is financed via FHA or conventional?

[Anonymous]

I know they are alot tighter on this than they used to be with FHA at least.  Conventional wll probably require high FICO (680+ if not 720) and 20+% down.

Fha I believe will only count 75% of the income and even then I think you have to be abel to prove a rental history via taxes.  I don't think a rental contract is enough anymore.  They want to see either reported tax documents or at least paystubs going back 6+ months.  I am sure credit scores, reserves, and down payment can mitigate the DTI though.  I am sure Shane, Dallas, Brian or someone will chime in with a more definitive answer, but having info on the properties, your credit situation, debt load, and income/job history etc will be required for really constructive info.

[ShanetheMortgageMan]

Fannie, Freddie & FHA all have come out with new guidelines pertaining to converting your current primary residence into a rental property and using the rental income to qualify for a purchase of a new owner occupied home.

For FHA, in order to use the rental income the homebuyer has a loan-to-value ratio of 75 percent or less, as determined by either a current (no more than six months old) residential appraisal or by comparing the unpaid principal balance to the original sales price of the property... OR the homebuyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance. 

View full guidelines at: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-25ml.doc

For Fannie Mae & Freddie Mac (for conforming conventional programs), in order to use the rental income the homebuyer has to have a loan-to-value ratio of 70% or below, a fully executed lease agreement, and a receipt for the security deposit from the tenant and documentation of deposit into the borrower's account.  If that documentation may be provided then the lender will use an income amount of no more than 75% of the gross rent being charged.

View full release notes about this guideline change at: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0816.pdf, https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/pdf/0816faqs.pdf, and http://www.freddiemac.com/singlefamily/20081017_advisory.html.

How much do you owe on your current home and what is it's value?

[f1maxis]

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@ShanetheMortgageMan wrote:

How much do you owe on your current home and what is it's value?

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About 60% of our home's current value is equity.

[ShanetheMortgageMan]

Then you should be fine using rental income on your primary-turned-rental provided you can meet the above guidelines.