Can rent be added to your salary when applying for a mortgage?
"The decision as to what counts as income is up to the bank. You'll need to ask them whether or not rental income can be included in the total. I can offer some anecdotal evidence: when I applied for a mortgage to buy my home, I already had a rental property with a buy-to-let mortgage on it. Initially the bank regarded that property as a liability, not an asset, because it was mortgaged! However, once I was able to show that there was a good history of receiving enough rent, they chose to ignore the property altogether -- i.e. it wasn't regarded as a liability, but it wasn't regarded as a source of income either. More generally, as AakashM says, residential mortgages are computed based on affordability, which is more than just a multiple of your salary. To answer your specific questions: Covered above; it's up to the bank. If you're married, and you don't have a written tenancy agreement, and you're not declaring the ""rent"" on your tax return, then it seems unlikely that this would be regarded as income at all. Conversely, if your partner is earning, why not put their name on the mortgage application too? Buy-to-let mortgages are treated differently. While it used to be the case that they were assessed on rental income only, nowadays lenders may ask for proof of the landlord's income from other sources. Note that a BTL cannot be used for a property you intend to live in, and a residential mortgage cannot be used for a property you intend to let to tenants -- at least, not without the bank's permission." I am in Australia, but I think the banks in the UK would use similar wrkings. Your options 1 and 2 are basically no. Why would the bank consider your wife to be paying you rent when you live together. These are the type of practices that led to the GFC, and since then practices have been tightened. Regarding option 3, yes banks do take into consideration rent in their analysis of your loan. However, they would not include the full rent in their calculations, but about 70% to 75% of the full rent. This allows for loss of rent during vacant periods and adds a safety factor in their caluclations. But they will not include the rent itself, you would have to have other income as well to support your loan. Saying that, we do have Low Doc Loans in Australia (loans with little documentation required to get a loan). With these loans you basically have to make a declaration that you are telling the truth regarding your income sources and you can only usually borrow a lower LVR as these loans are seen as a bigger risk. These type of loans have also been tightened up since the GFC. The days are long gone when offered mortgages were simply based on salary multiples. These days it's all about affordability, taking into account all incomes and all outgoings. Different lenders will have different rules about what they do and don't accept as incomes; these rules may even vary per-product within the same lender's product list.  So for example a mortgage specifically offered as buy-to-let might accept rental income (with a suitable void-period multiplier) into consideration, but an owner-occupier mortgage product might not. Similarly, business rules will vary about acceptance of regular overtime, bonuses, and so on. Guessing at specific answers: #1 maybe, if it's a buy-to-let product, Note that these generally carry a higher interest rate than owner-occupier mortgages; expect about 2% more #2 in my opinion it's extremely unlikely that any lender would consider rental income from your cohabiting spouse #3 probably yes, if it's a buy-to-let product I can answer Scenario #3. If you are purchasing a property with buy-to-let intentions […] can you use the   rental income exclusively to fund the mortgage repayments? Yes – this is exactly how buy-to-let mortgage applications are evaluated. Lenders generally expect you to fund the mortgage payments with rent. They look for the anticipated monthly rent income to cover a minimum of 125% of the monthly mortgage payment. This is to make sure you can allow for vacant periods, maintenance, compliance with rules and regulations, and still be in profit (i.e. generate a positive yield on your investment). However, buy-to-let (BTL) mortgage lenders also generally expect you to own your own home to begin with. It's up to them, but rare is the lender who will provide a buy-to-let mortgage to a non-owner-occupier. This is because of point 2 above. The lender doesn't want you to end up living in the property because then you'll need to repay the loan capital, since you'll always need somewhere to live. This makes the economics of BTL unfavourable. They look at your application as a business proposal: quite different to a residential mortgage application, which is what your question seems to be addressing. Bottom line: You're right about scenario #3 but it sounds like you're trying to afford a home first, whereas BTL is best viewed as an investment for someone who already has their main residence under ownership (mortgaged or otherwise). As for Scenarios #1 and #2 I can't offer first hand answers but I think Aakash M. and Steve Melnikoff have covered it.
People typically present themselves to be as wealthy as possible to banks and as poor as possible to the government at tax time.  Gross income is really the most reliable number for most folks. Your and your employer are required by law to report an accurate gross income figure annually. Anything else is totally situational.  All they are doing anyway is computing your total debt-to-income ratio and mortgage-to-income ratio. The government agencies that buy mortgages, the big bank that buys the mortgage or the self-underwriting bank has differing standards for different products. "DirectGov has a good overview here: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4017814 and answers to your specific questions here: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10013435 In short, you do need to declare the rental income on your tax return and will need to pay tax on it (and note that only the mortgage interest (not the full repayment) is deductible as an ""allowable expense"", see the full list of what is deductible here: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10014027 )." Will buying a flat which generates $250 rent per month be a good decision? Whether investing in real estate is a good decision or not depends on many things, including the current and future supply/demand for rental units in your particular area. There are many questions on this site about this topic, and another answer to this question which already addresses many risks associated with owning property (though there are also benefits to consider). I just want to focus on this point you raised: I personally think yes, because rent adjusts with inflation and the rise in the price of the property is another benefit. Could this help me become financially independent in the long run since inflation is getting adjusted in it? In my opinion, the fact that rental income general adjusts with 'inflation' is a hedge against some types of economic risk, not an absolute increase in value. First, consider buying a house to live in, instead of to rent:  If you pay off your mortgage before your retire, then you have reduced your cost of accommodations to only utilities, property taxes, and repairs. This gives you a (relatively) known, fixed requirement of cash outflows. If the value of property goes up by the time you retire - it doesn't cost you anything extra, because you already own your house. If the value of property goes down by the time you retire, then you don't save anything, because you already own your house. If you instead rent your whole life, and save money each month (instead of paying off a mortgage), then when you retire, you will have a larger amount of savings which you can use to pay your monthly rental costs each month. By the time you retire, your cost of accommodations will be the market price for rent at that time. If the value of property goes up by the time you retire - you will have to pay more on rent. If the value of property goes down by the time you retire, you will save money on rent. You will have larger savings, but your cash outflow will be a little bit less certain, because you don't know what the market price for rent will be. You can see that, because you need to put a roof over your own head, just by existing you bear risk of the cost of property rising. So, buying your own home can be a hedge against that risk. This is called a 'natural hedge', where two competing risks can mitigate each-other just by existing. This doesn't mean buying a house is always the right thing to do, it is just one piece of the puzzle to comparing the two alternatives [see many other threads on buying vs renting on this site, or on google]. Now, consider buying a house to rent out to other people:  In the extreme scenario, assume that you do everything you can to buy as much property as possible. Maybe by the time you retire, you own a small apartment building with 11 units, where you live in one of them (as an example), and you have no other savings. Before, owning your own home was, among other pros and cons, a natural hedge against the risk of your own personal cost of accommodations going up. But now, the risk of your many rental units is far greater than the risk of your own personal accommodations. That is, if rent goes up by $100 after you retire, your rental income goes up by $1,000, and your personal cost of accommodations only goes up by $100. If rent goes down by $50 after you retire, your rental income goes down by $500, and your personal cost of accommodations only goes down by $50. You can see that only investing in rental properties puts you at great risk of fluctuations in the rental market. This risk is larger than if you simply bought your own home, because at least in that case, you are guaranteeing your cost of accommodations, which you know you will need to pay one way or another. This is why most investment advice suggests that you diversify your investment portfolio. That means buying some stocks, some bonds, etc.. If you invest to heavily in a single thing, then you bear huge risks for that particular market. In the case of property, each investment is so large that you are often 'undiversified' if you invest heavily in it (you can't just buy a house $100 at a time, like you could a stock or bond). Of course, my above examples are very simplified. I am only trying to suggest the underlying principle, not the full complexities of the real estate market. Note also that there are many types of investments which typically adjust with inflation / cost of living; real estate is only one of them. In the rental application you are giving them express consent to check up on your credit and employment history for verification, you must be honest with them, if you have had no income for the last say 6 months then you have simply had no income. If you are worried about it, you can supply them with a longer history if it will help your situation, they may also call your employer to see that you will be returning to work or again receiving some sort of income. But also as stated, talk to the property manager, they can work both ways in either helping or not helping you. Note: I am in the UK. I don't know specifically about australia but I expect the general principles will be much the same everywhere. What banks want is to be reasonablly confident that you have a steady income stream that will continue to pay the mortgate until it completes.  In general employed are fairly easy to assess. Most employed people will have a steady basic pay that increases through their career. Payslips will usually seperate-out basic pay, overtime and bonuses. There is little opertunity to cook the books. The self-employed are harder to assess. Income can be bursty and there are far more opertunities for cooking the books to make it look like you are earning more than you really are. So banks are likely to be far more careful about lending to the self-employed, they will likely want to see multiple years of buisness records so that any bursts, whether natural due to the ebbs and flows of buisness or deliberatly created to cook the books average out and they can see the overall pattern. A large deposit will help because it reduces the risk to the bank in the event of a default. Similarly not being anywhere near your limit of affordability will help. "Mortgage agreements usually have a clause in which the mortgagor warrants that all the statements and information which they have provided to the mortgagee are correct. In your case, this probably included your credit score. Since your ""statement"" concerning your credit score is no longer accurate, they want you to update the agreement with the new information before the final version is prepared. Credit scores change for many random reasons. The agencies re-calibrate formulas constantly. It is unlikely that your mortgage negotiations affected your credit score. The bank will only start reporting the facts of mortgage to a credit agency when you start paying (or not paying) the loan. Credit agencies don't care whether you have a loan or not. They only care whether you have paid your debts, or not paid them." "A person can finance housing expenses in one of two ways. You can pay rent to a landlord. Or you can buy a house with a mortgage. In essence, you become your own landlord. That is, insta the ""renter"" pays an amount equal to the mortgage to insta the ""landlord,"" who pays it to the bank to reduce the mortgage. Ideally, your monthly debt servicing payments (minus tax saving on interest) should approximate the rent on the house. If they are a ""lot"" more, you may have overpaid for the house and mortgage. The advantage is that your ""rent"" is applied to building up equity (by reducing the mortgage) in your house. (And mortgage payments are tax deductible to the extent of interest expense.) At the end of 30 years, or whatever the mortgage term, you have ""portable equity"" in the form a fully paid house, that you can sell to move another house in Florida, or wherever you want to retire. Sometimes, you will ""get lucky"" if the value of the house skyrockets in a short time. Then you can borrow against your appreciation. But be careful, because ""sky rockets"" (in housing and elsewhere) often fall to earth. But this does represent another way to build up equity by owning a house." Also you would need to consider any taxation issues. As he will be paying you rent you will need to include this as income, plus any capital gains tax on the re-sale of the property may need to be paid. Slightly abbreviated version of the guidance from NOLO.com California state law limits credit check or application screening fees landlords  can charge prospective tenants and specifies what landlords must do when accepting these types of fees. (Cal. Civ. Code § 1950.6.)  Here are key provisions: I am not a lawyer, but it would seem you have two options if you catch a landlord violating these rules. An idea to avoid the whole problem in the first place: Get a copy of your credit report yourself and take a copy with you to meet the landlord. If they want an application fee, ask why they need it making it clear you know the above law. If they say for a credit report offer to give them a copy in lieu of the fee. "that would deprive me of the rental income from the property. Yes, but you'd gain by not paying the interest on your other mortgage.  So your net loss (or gain) is the rental income minus the interest you're paying on your home.  From a cash flow perspective, you'd gain the difference between the rental income and your total payment. Any excess proceeds from selling the flat and paying off the mortgage could be saved and use later to buy another rental for ""retirement income"".  Or just invest in a retirement account and leave it alone.  Selling the flat also gets rid of any extra time spent managing the property. If you keep the flat, you'll need a mortgage of 105K to 150K plus closing costs depending on the cost of the house you buy, so your mortgage payment will increase by 25%-100%. My fist choice would be to sell the flat and buy your new house debt-free (or with a very small mortgage).  You're only making 6% on it, and your mortgage payment is going to be higher since you'll need to borrow about 160k if you want to keep the flat and buy a $450K house, so you're no longer cash-flow neutral. Then start saving like mad for a different rental property, or in non-real estate retirement investments." Another option is to look at the rent difference between where you need to be and where the others would rent, without considering your job. You pay the difference, which is due to your unique requirements, and split the remainder equally. Several factors are considered in loans as significant as a home mortgage.  I believe the most major factors are 1) Credit report, 2) Income, and 3) Employment status If you borrow jointly, all joint factors are included, not just the favorable ones.  Some wrinkles this can cause may include: Credit Report - The second person on the loan may have poor credit or no credit.  This can/will hurt your rate or even prevent them from being listed on the loan at all, which will also mean you can't include their income. In addition, there are future consequences: that any late payments, default, foreclosure, etc. will be listed on all borrower's reports. If you both have solid work history, great credit, and want to jointly own the home, then there shouldn't be any negatives.  If this is not the case, compare both cases (fully, not just rates, as some agents could sneakily say you can get the same rate either way but then not tell you closing costs in one scenario are higher), and pick the one that is best overall. This is just information from my recollection so make sure to verify and ask plenty of questions, don't go forward on assumptions. I don't like it using percentages makes no sense.  Find out what market value is for rent and pay 1/2 of that to your partner, adjust annually.   You partner should be protected from inflation if he is going to invest in real estate. I have never had a lender ask my budget, only my income, savings, credit rating and value of the collateral. That's considered adequate info to estimate risk for most ordinary loans. Yes, they may want the income proven by evidence from your employer or via a copy of your tax returns. They don't care what you buy as long as there's evidence you'll make loan payments on time for the life of the loan. Is this a reasonable goal or will it be impossible to get a loan with   my almost non-existent income? I know I can put estimated rental revenue as income, but I'm not sure   if I would qualify. Banks typically only count rental income after you've been collecting it for two years, and at that point the banks will count 75% of it as income for loan qualification purposes.  You'd have to qualify for the mortgage without the potential rental income. Currently that means a 43% debt (including proposed mortgage) to gross income ratio. Even if you qualify, you have to be prepared to handle repairs, HVAC/water-heater could fail on day 1, and tenants have a right to withhold rent if some repairs aren't made. You also have to be able to weather non-payment/eviction of a tenant. You could find a co-signor, maybe go in on a house with a friend, but there are risks and complications that can arise there if a party becomes unable to pay, or deciding how to split equity and expenses.  If you had the income/capital to comfortably pull it off without tenants, then that'd be a great situation, college rentals tend to be lucrative (I'd recommend getting tenants with parental co-signers to reduce risk). If you qualify but would be in trouble quickly if one tenant stopped paying, or a major appliance needed to be replaced, then it's probably not worth the risk.