Bother before and after the housing debacle mortgage lenders verified that the borrowers could afford the new mortgage payments plus things such as taxes and insurance.

This along with other monthly credit obligations were compared with monthly income used to pay those debts. Sometimes thereverifying income for rental properties is monthly income that can’t be used. It’s in the bank or at home in a box, but the lender refuses to count it. What types of income will a lender allow to be used for qualifying purposes?

If this is your first rental property you’re financing, you’ll quickly find out that the income from the rental can’t be used. Lenders want to gauge your ability to be a landlord and will ask for tax returns showing rental income and expenses. If you don’t have that, you can’t use the rental income.

One of the main considerations when verifying income is the source. Where are the funds coming from? If the income is from a job then you can expect to provide your most recent pay check stubs and W2 forms. If you’re self-employed then you’ll be asked for copies of your two most recent signed federal income tax returns. Income has to be sourced it the lender won’t use it. Period.

This can happen in a few ways but one that is more common than others applies to those who work in the service industry. Perhaps there is a bartender who has been at the same establishment for five years and the tip jar is always full. Even the very best who track every penny they earn can, for whatever reason, not enter all the tip income on their tax returns. If the income isn’t on the returns, it can’t be used.

Whatever the income, the lender needs third party verification of where it came from and will look to see if there is a history of that income, typically a minimum of two years and if the income is expected to continue into the future. If all three are met, the income may be used to qualify.