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June 1, 2020
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Can you use roommate income to get a mortgage?

By: Scott Sheldon
April 5, 2019

Refinancing or purchasing a house requires an ample supply of cash, credit and income. Here’s what you need to know with regards to getting a mortgage loan with roommate income.

Generally, to get a mortgage you cannot use roommate income to qualify. In the lending world this type of income is called border income. Most mortgage companies allow you to use the income from your rents or your W-2 job or your self-employment business. A good rule of thumb is if the income can be documented it generally can be used to help you borrow. Roommate income is particularly dicey because it’s not stable. People come and go creating an unreliable source of income for most mortgage loan programs available in the marketplace today

There are three different types of loans that allow for roommate income to qualify. Fannie Mae Home Ready and Freddie Mac Home Possible allow you to use roommate income to qualify. You will want to show that you have a history of this income identified on your tax returns and they will let you use only 30 percent of the total rents as income to qualify.

Not to be confused with 75 percent of rental incomes, which is an entirely different animal. It’s 30 percent of the total annual rent divided by 12. The FHA also allows for this type of income as well. The mortgage company is also going to want a rental agreement to support the use of this income. A word to the wise, if your income is 100 percent reliant on border income, your loan is going to be very difficult. The moral of the story is that this income must be identified on your tax return. Mortgage companies do not take kindly to people who are receiving any form of income quote-unquote under the table. Under the table income in the eyes federally backed Fannie Mae and Freddie Mac do not mix. You must have provable documentable income and meet the requirements of the lender to use this type of income for purchasing or refinancing real estate.

With regards to using rental income, this rental income needs to be calculated from the schedule E on your tax return or if you’re buying the property brand new you can use 75 percent gross rents in your borrowing power for qualifying. Make sure if the lender is telling you the right information so you don’t wind up with bad news later in your mortgage process.

Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.