In the rental income calculation, what percentage of gross rental income is used before subtracting the mortgage payment?

In the rental income calculation, what percentage of gross rental income is used before subtracting the mortgage payment?

• A. 25%
• B. 50%
• C. 75%
• D. 100%

Answer: (C)

When using rental income to qualify for a mortgage, lenders don’t count all of the gross rent. They apply a cushion for vacancies and operating costs, so only a portion of the gross rent is used. The standard approach is to take 75% of the gross rental income and then subtract the property’s monthly mortgage payment to determine the net rental income available for qualification. This 75% figure reflects expected vacancies, maintenance, property management, and other expenses. Using 100% would overstate income by ignoring those costs, while 50% or 25% would be more conservative than typical underwriting practices.

When using rental income to qualify for a mortgage, lenders don’t count all of the gross rent. They apply a cushion for vacancies and operating costs, so only a portion of the gross rent is used. The standard approach is to take 75% of the gross rental income and then subtract the property’s monthly mortgage payment to determine the net rental income available for qualification. This 75% figure reflects expected vacancies, maintenance, property management, and other expenses. Using 100% would overstate income by ignoring those costs, while 50% or 25% would be more conservative than typical underwriting practices.