Using Rental Income to Qualify for a Mortgage

September 15, 2019
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If you already have a portfolio of properties, you may be wondering about the possibility of using your rental income to secure a mortgage on another property. While it is possible to get a mortgage with rental income as your primary source of income, expect the bank to ask you to jump through a few additional hoops.

In this article, we will look at the circumstances that might lead you to use rental income to qualify for a mortgage. We will also share some top tips that will allow you to make the most of this opportunity and navigate the mortgage process with ease.

Can I qualify for a mortgage with rental income?

If you already own one property that is currently rented and you would like to secure a mortgage against another property, you may be able to use the rental income as a proof of income. In some cases, you may even be able to use potential future rental income to secure a mortgage. It all depends on the type of mortgage you are looking for and the requirements set out by the bank.

Can I get a residential mortgage?

If you already have a rental property and this is your main source of income, you may be able to use your rental income to secure a residential mortgage. A residential mortgage would only be granted if you intend to live in the property. 

If you are still paying a mortgage on your existing rental property then it is unlikely that you would be able to get an additional residential mortgage using the rental income from your property. Banks are primarily concerned with affordability. If you are already paying one mortgage and this is your only source of income then they may see this as a red flag.

Can I get a buy to let mortgage?

The rules for a buy to let mortgage are quite different. As the buy to let mortgage is intended for landlords, some will allow you to use the future rental as proof of income. However, this isn’t always the case.

If you have existing rental properties, you may be able to use the rental income from these properties as proof of income. But this isn’t always as straightforward. Lenders need to limit their risk. And there is always the risk that your rental property could remain empty. This could lead you to default on your mortgage.

How do I prove rental income?

Banks often need more than just rental agreements and bank statements to prove that you have income from rental properties. Since most landlords are self employed, they will be treated like any other self employed individual. When you’re using rental income to qualify for mortgage payments, you should approach this as a business venture.

This means that lenders will want to see tax returns or SA302 forms as proof of income. Some will ask for SA302 forms for the past 3 years. Others might only ask for your income from the past year.

How much can I borrow?

Once you have passed the lender’s checks, they will use a standard affordability calculation to determine how much you can borrow. This will often be a multiple of your annual income. If you annual income varies, some might take the average over the last 3 years as your income. Others might take the lowest annual income from the last 3 years. This all varies depending on the lender.

As with all mortgage questions, the final decision will always be left with the lender. This means that you should shop around and speak to a few different lenders before making a final decision. 

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