10-04-2012 08:39 PM
Long story short...My father passed away and as his only daughter and no spouse, I inherited his house. He has a mortgage of about $105,000 and the property is hardly worth $110,000 (on a good day). It is a 3 story house and my dad would rent out the top two floors and he lived on the 1st floor. I plan to keep the house and rent out all 3 floors.
My husband just recently went onto commission income, so we have a 2 year wait until we are able to purchase a home. I talked to the bank and they said they will add me as a 3rd party to the loan. It will not go on my credit report, but if/when we sell the house, any profit will come to me.
So my question is...Will having this responsiblity of paying this mortgage be seen as a debt/liability? Or will it be seen as income due to the rent paying the mortgage and then some? Or will they even know about this property at all since it won't be on my credit report?
10-05-2012 01:39 AM
It will not matter if it is or is not reporting. When you apply for a loan (Your newer house) you will legally need to disclose that you are responsible for the debt. So yes, it will go against your proposed borrowing limit. Additionally, banks and financial institutions will not count rental income as fully weighted. This means, it is not guaranteed monthly income so you could be hurt even more on your borrowing limit. AS always YMMV dependent on your financial institution's policys and your loan officer.
10-05-2012 06:54 AM
The taxes and insurance on that home will also count against your DTI ratios.
10-05-2012 12:32 PM
If the lender is adding you to the mortgage than there is a good chance that they will report the payments on your CR.
As pointed out before, even if the lender/servicer doesn't report the payment on your CR, you will have to disclose that you are responsible for the loan and then you will need to show the new lender that the payments have been made on time.
Yes, it will impact your DTI.
In order to use whatever rental income you receive from the property, you will need to report that income on your tax returns. The new lender will want a copy of your returns showing the rental income and expenses.
Also, as pointed out, they will not use 100% of the rental income. The new lender will put in an amount for vacancy and collection even if the property is fully rented and everyone is paying ontime (on a single family home its is typically 25% of your gross rents - on a multi-unit residential building it can vary from lender to lender). Keep great records of your rental receipts and expenditures too. It will help at tax time AND when you need to get a mortgage for your new purchase.
You might want to contact a CPA now to have him show you the way to handle the rentals from a financial and tax viewpoint so that you get the overall best result from your investment property. There are some real benefits to owning rental property along with a few problems.