“Rental add-back” is the percentage of rental income a borrower receives that the lender is willing to use to qualify him/her for a mortgage.
Rental add-back can range from 50%-100% on conventional mortgages. This percentage of rental income is added to the borrower’s income to determine his/her debt ratio.
Here’s an example of how rental add-back is used to calculate a borrower’s total debt service (TDS) ratio:
___ __________ PITH + Other Debts___ _________
PITH = Principal, interest, property taxes, heat, and 1/2 of condo fees. PITH generally takes into account housing costs from all the borrower’s properties.
Keep in mind, lenders have many different forumulas for calculating debt ratios with rental income, so check your lender’s guidelines.
Join our mailing list to receive the latest news and updates as they happen. Unsubscribe any time.