Can rental income be used to qualify a borrower?

Rental income can be used to qualify a borrower, but specific guidelines apply regarding how it is documented and reported. The correct answer indicates that rental income must be claimed on the borrower’s income taxes.

This requirement stems from the need for lenders to verify the consistency and reliability of the borrower's income. When a borrower claims rental income as part of their taxable income, it creates an official record that lenders can review, which helps establish that the income is ongoing and stable. Documented rental income on tax returns demonstrates the borrower's ability to generate income from their property, which is crucial when determining their capacity to repay the mortgage.

In instances where rental income is not claimed on tax forms, lenders may view it as unreliable or potentially unverified income. It’s important for borrowers to understand that lenders typically require a strong paper trail, including tax returns, lease agreements, and possibly documentation of payment histories from tenants, to confidently use rental income in the qualification process.

Overall, this requirement for tax documentation helps protect lenders from risk and ensures that borrowers are only qualifying for loans based on verifiable income streams.