Can you? You want to buy a property, but your income is just not there. So, you look around for a three-bedroom place and decide to take on a renter to help qualify for your new mortgage. You soon find a couple of places and the price seems okay, but you also need to find someone to rent out one of the bedrooms to boost your income. Can you make this happen?
First, let’s look at how lenders look at any income in general. First, there needs to be a two-year history of receiving it. Your job is certainly your primary source of income but let’s say you decide to buy a rental property and use the income from that unit to offset the mortgage, taxes, insurance, and maintenance. Lenders want to see that rental income has a two-year history. Once you’ve passed that threshold, you’re all set. But the two-year requirement remains the same. Second job? Two-year history? Part-time work? Again, a two-year history.
Now let’s circle back to a roommate. You need the additional income to finance the home you want to buy. You find someone and you both agree upon the rent from one of the bedrooms each month.
Next, you contact your mortgage lender and offer your scenario. But you hit a roadblock. First, there’s no history of you being a landlord. Second, there is no history of being paid on time from the prospective tenant. Yes, you theoretically have enough income when you add the tenant’s portion of the rent, but it can’t be counted. At least in the lender’s eyes. Instead, you must qualify on your own.
A strategy might be to buy the home along with your prospective tenant and you both own the property. This brings on a whole new set of issues you’ll need to address. The primary one is that your new associate must have good credit. When two or more people apply for the same mortgage, lenders will use the lower of all the scores. Lenders don’t average them together. If one score is 720 and the other is 590, the lender will use 590.
Getting a roommate to help qualify won’t help with your debt ratios. While your payment is split with others, a roommate’s income is not going to do much, at least from the lender’s perspective.
