Qualifying with rental income
If you are qualifying a borrower with rental income from their investment properties, you must use what is declared on their tax returns as opposed to what their lease states.  The only time you can use the income from a lease is if the property was acquired subsequent to filing and would therefore not appear on their tax returns.  If this is the case, be prepared to show bank statements with regular rent deposits. 
If qualifying using a tax return, use this method only.
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Take the net profit (or loss) and add back in the following deductions: 
·         Depreciation
·         Mortgage interest
·         Property taxes
·         Insurance
·         HOA payments
·         One-time large repairs (be careful with this one… it has to be sizably larger than the previous year to count) 
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** Most of the time, you will have to average the last two years’ tax returns for the allowable monthly rent, but occasionally one year.

** Also, if you take rental income directly off the tax return, you do not have to use a 25% vacancy factor.  Show 0% as the vacancy factor.

     Alex Echeandia, Choice Finance