Rental income

Use this to determine the approach(es) you can use to calculate rental income and the inputs to consider when calculating the debt service ratios

1. Owner occupied?
   1. Yes, Subject to loan application?
      1. Yes
         1. 2 units – Use the up to 100 percent gross rental income approach
         2. 3 – 4 units – Use either: A) up to 50 percent  gross rental income approach; or B) net rental income approach
      2. No
         1. 2 – 4 units - Use either: A) up to 50 percent gross rental income approach; or B) net rental income approach
   2. No, Subject to loan application?
      1. Yes
         1. 2 – 4 units – Use either: A) up to 50 percent gross rental income approach; or B) net rental income approach
         2. 1 unit – Cannot proceed, not eligible for Mortgage Loan Insurance
      2. No, use the net rental income approach

Gross rental income approach (Applies when property is subject of the application):

Taxes and heat for the subject property may be excluded.

The percentage of gross rents is added to gross annual income.

Gross Debt Service

(Annual Principal* & Interest*) divided by (Gross annual income plus percentage of gross rental income)

Total Debt Service

(Annual Principal* & Interest* plus other debts) divided by (Gross annual income plus percentage of gross rental income)

1. up to 50 percent gross rental income approach
   

   Principal and interest payments for the owner-occupied 2–4 unit property (not subject of the application) are to be included in the Total Debt Service ratio.
   Taxes and heat for the subject property may be excluded.

   Total Debt Service

   (Annual Principle, Interest, Taxes, Heat* plus other debts) divided by (Gross annual income plus 50percent gross rental income)

2. net rental income approach (Applies when property is subject of the application)
   

   Net rental income equal gross rents — operating expenses. While this approach is permitted, it is not likely to be used (see handbook for details).
   If tenant pays heat, it can be excluded.

   Gross Debt Service
   (Annual Principle, Interest, Taxes, Heat* *) divided by (Gross annual income plus net rental income (deduct if negative))
   Total Debt Service
   (Annual Principle, Interest, Taxes, Heat* plus other debts) divided by (Gross annual income plus net rental income (deduct if negative))

   Net rental income approach (applies when property is not subject of the application)
   Net rental income equals gross rents — operating expenses.
   Principle, Interest, Taxes, Heat* payment should either be deducted from the gross rental income or included as a debt obligation when calculating the Total Debt Service ratio.
   If tenant pays heat, it can be excluded.
   Total Debt Service
   (Annual Principle, Interest, Taxes, Heat* plus other debts) divided by (Gross annual income plus net rental income (deduct if negative))