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Rental Add-Back

“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___   _________Borrower’s Income + ( Rental Addback x Rental Income )



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.

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Last modified: September 18, 2010

Robert McLister is one of Canada’s best-known mortgage experts. A mortgage columnist for The Globe and Mail, interest rate analyst and editor of MortgageLogic.news, Rob has been covering Canada's mortgage market since 2007.

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