How to use rental income to qualify for a mortgage

Sometimes people invest in rental property to create an income stream outside of their regular job. Other times, people move or experience financial difficulties and find that leasing the existing home is a better financial move than selling it in a down market. Because the mortgage for the rental property is on your credit, it is counted in your debt ratio for a new mortgage qualification. Many people cannot qualify outright for two home payments, but if you can prove rental income on the second property, the mortgage company will include that amount in your income, offsetting the mortgage expense.

Claim all income and expense from the rental property on your tax return. The mortgage company will likely request copies of the past two years of your personal tax return and will expect to see the leased property listed on a Schedule E if it has been leased during prior tax years.

Make a copy of the existing lease for the property. You must have a lease to prove that another person is legally liable to remit the amount of the monthly rental payment you are claiming on your current loan documents.

Maintain a list of expenses associated with leasing the property for the current tax year. The mortgage company will want to know the amount of expense associated with the lease to properly reduce rental income by that amount. This is particularly important if the property was recently converted to rental property and has never been reported on your personal tax return.

Deposit the entire amount of rent received each month into a bank account in your name. The mortgage company will want to verify that the amount listed on the lease is the amount received for rental. The mortgage company may request up to a year of statements to ensure that you are not committing fraud by claiming lease income.


Some mortgage companies will only allow 75 per cent of the amount of income received for rental property to be used in your debt ratio calculation. That method of calculation could affect your ability to qualify for a new loan.

Cite this Article A tool to create a citation to reference this article Cite this Article

Things Needed

  • Personal tax return for prior 2 years
  • Lease for rental property
  • Bank statements

About the Author

Kaye Morris has over four years of technical writing experience as a curriculum design specialist and is a published fiction author. She has over 20 years of real estate development experience and received her Bachelor of Science in accounting from McNeese State University along with minors in programming and English.

Try our awesome promobar!