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Can You Use Rental Income to Qualify for a Mortgage?

August 22, 2025 by Kay Monigold

When it comes to qualifying for a mortgage, your income plays a key role in determining how much you can borrow. For many buyers, especially those interested in investment properties or who plan to rent out part of their home, the question is whether rental income can be counted toward their mortgage qualification. The good news is that in many cases, rental income can help, but there are specific rules and documentation requirements you will need to meet.

Understanding How Lenders View Rental Income
Lenders want to ensure that any rental income you list is reliable and can be used to make mortgage payments. This means they typically look for documented proof of that income and assess its stability. If you already own a rental property, lenders may use your past tax returns to verify income. If you are buying a new property, they may allow you to use projected rental income if you can provide a signed lease agreement or an appraisal that includes rental value.

Using Existing Rental Income
If you already have rental properties, lenders will generally want to see two years of rental income history on your tax returns. They may use the average income reported over that period, minus expenses, to determine how much can be counted toward your qualification. This helps ensure the income is consistent and not just a short-term boost.

Using Future Rental Income
If you are buying a property that you plan to rent out, such as a duplex, triplex, or a single-family home with a basement apartment, lenders may allow you to use a portion of the projected rent toward your qualification. This often requires a market rent analysis or a signed lease, and lenders will typically only count a percentage of that income, usually around 75 percent, to account for potential vacancies and expenses.

Owner-Occupied vs. Investment Properties
The rules for counting rental income may differ depending on whether you are buying a primary residence with a rental unit or a dedicated investment property. For owner-occupied properties, lenders are sometimes more flexible with projected rental income. For investment properties, they often require more documentation and may have stricter qualification standards, including higher down payments.

The Impact on Your Debt-to-Income Ratio
Rental income can help lower your debt-to-income ratio, making it easier to qualify for a larger mortgage. Since lenders compare your monthly debt payments to your gross monthly income, adding rental income to the equation can make your financial profile more favorable. However, it is important to remember that lenders may not count 100 percent of the rent, so plan accordingly.

Documentation Is Key
To use rental income for mortgage qualification, be prepared to provide the necessary paperwork. This could include signed lease agreements, tax returns with Schedule E, property management records, or an appraisal with a rental analysis. The more organized and complete your documentation, the smoother the process will be.

Yes, you can often use rental income to qualify for a mortgage, but it depends on the type of property, your history as a landlord, and the documentation you can provide. Working with a knowledgeable mortgage professional can help you navigate the rules and make the most of your rental income when applying for a loan.

Filed Under: Mortgage Tips Tagged With: Mortgage Tips, Qualifying For A Mortgage, Rental Income

The Benefits of Paying Points on Your Mortgage

August 13, 2025 by Kay Monigold

The Benefits of Paying Points on Your Mortgage
When you take out a mortgage, you may be given the option to pay points in exchange for a lower interest rate. A mortgage point, also known as a discount point, is equal to 1% of the loan amount. For example, if you re financing $200,000, one point would cost $2,000. While paying points means you ll pay more upfront, it can offer long-term savings. Understanding the benefits of paying points on your mortgage can help you decide if it’s the right move for you.

What Are Mortgage Points?
Mortgage points are fees paid directly to the lender at closing in exchange for a reduced interest rate. When you pay points, you essentially  buy down  the interest rate, which lowers your monthly payments. Typically, paying one point will reduce the interest rate by 0.25%, though this can vary depending on the lender and the market. While this option increases your upfront costs, it can result in significant savings over the life of the loan, especially if you plan to stay in the home for an extended period.

Lower Monthly Payments
The most obvious benefit of paying points on your mortgage is that it reduces your monthly payments. By lowering your interest rate, your monthly mortgage payment will be smaller, which can make a substantial difference in your monthly budget. For many homeowners, this can provide much-needed relief, particularly if they are dealing with high-interest rates or trying to reduce debt. Over time, the savings from lower payments may offset the initial cost of paying for points, making it a financially sound decision.

Long-Term Savings
In addition to lowering your monthly payment, paying points can result in long-term savings. The interest you save over the life of your loan can be substantial. For example, on a 30-year loan, reducing your interest rate by just 0.25% can save thousands of dollars in interest over the course of the loan. If you re planning to stay in the home for many years, paying points can be a wise investment, as the upfront cost will eventually pay for itself through the lower interest payments.

When Paying Points Makes Sense
Paying points may be a good choice if you have extra cash available at closing and plan to stay in your home for a long period. The longer you stay in the home, the more beneficial paying points can be, as it will take time for the upfront cost to be offset by the savings on your monthly mortgage payments. It s also a good idea if you re currently facing a high interest rate and want to lock in a lower rate without refinancing in the future. However, if you plan to sell or refinance in a few years, the upfront cost may not be worth the savings.

Factors to Consider
Before deciding to pay points, it s important to consider several factors, including your budget, how long you plan to stay in the home, and whether the upfront cost is feasible. You should also weigh how much you ll save with the lower interest rate versus the initial expense of paying the points. If you are unsure whether paying points is the right option, speaking with a mortgage professional can help you analyze the potential benefits based on your personal financial situation.

Filed Under: Mortgage Tips Tagged With: Home Loans, Mortgage Points, Mortgage Tips

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Our Team

Kay MonigoldKay Monigold
Owner/Mortgage Broker/Residential Mortgage Loan Originator
NMLS#1086176

Steven LoweSteven P Lowe, Sr
Residential Mortgage Loan Originator
NMLS #1085638

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