Rental income refers to the money earned by an individual or entity from leasing out a property to another party. This income is typically generated on a regular basis, such as monthly or annually, in exchange for the right to use the property. Rental income is a common source of revenue for property owners, landlords, and real estate investors. It can come from various types of properties including residential homes, apartments, commercial buildings, and vacant land leased for agricultural or recreational purposes.

Rental income is simple and yet very complicated depending on the scenario. You have 1007’s, (appraisal reports for rental income) lease agreements, first and last month’s rent required, tax returns, exceptions to tax returns, varying income uses based on landlord experience as well as whether you currently own a primary residence or not.

It is a lot to take in and we could write multiple articles on the different aspects of rental income.

We want to take one area of rental income to make sure you understand this part as it does confuse folks.

If rental income or loss relates to the borrower’s principal residence like a 2-4 unit property.

If you have a net income then you add the income to their total monthly income.

If you have a loss you take the loss and add it as a liability.

Same as you would for an investment property they may own.

The difference is on a primary residence subject property you must always hit them with the full PITIA payment as a liability payment.

On an investment property the PITIA (full payment) is not added as a liability and is figured in to the net income or loss and applied as income or a liability without considering the actual mortgage payment in the Debt to income ratio.

We have a lot of folks who want to purchase a multi unit property and use the rental income to offset the mortgage payment and it does not work that way. It actually does work that way but you need substantially more income from the rental property to impact the debt to income than you do with an investment property.