Mortgage and potential rent inco

We just bought a 2-family brownstone. The bank accepted 75% of the rental income. Our financing process was nightmarish, mostly because Fannie Mae is changing its lending rules and the banks haven’t gotten their heads around what passes muster and what doesn’t. It would not surprise me if the 75% rule changed during your financing process, so keep your eyes open for that.

It sounds like you’re still looking for a place. BHO is correct that rents are still volatile right now. Also, IMHO, I’d stay away from buying 1-bedroom rental units. The market it flooded right now with a lot of ex-condo stock, and a lot of it is 1-bedroom. If all that development on 4th Ave comes online as rental in the next six months, you’d be competing with it.

Also, you probably already know this, but don’t forget to budget for vacancy. If a tenant leaves and you need to fix the place up for a month or two, you don’t want to be sweating your mortgage.

In a property 4 units or less the bank will include 75% (to account for potential vacancies) of the rental units income on top of your salary and any conforming limits that may apply. This does not include the unit you will live in. Banks have different metrics for non owner occupied buildings.

For “commercial” properties, 5 units or more, the bank will give you roughly 9x’s the rent roll, minus expenses (regardless of your personal income – “commercial” loans could care less about you, they just take into account the building’s income).

So if you want to buy a 4 family, you will live in 1, the bank will take in to account 75% of the remaining 3 units and add that to your personal income to figure out what they’ll give you.