A self-employed borrower reports net business income of $60,000 annually but adds back $12,000 in depreciation expenses. They also receive $18,000 annually in rental income with $6,000 in rental expenses. What is their qualifying monthly income for DTI calculations?
Correct Answer
A) $7,500
Qualifying income = Net business income + add-backs + net rental income = $60,000 + $12,000 + ($18,000 - $6,000) = $84,000 annually ÷ 12 months = $7,000 monthly. However, lenders typically use 75% of net rental income, so: ($60,000 + $12,000 + ($12,000 × 0.75)) ÷ 12 = $90,000 ÷ 12 = $7,500.
Why This Is the Correct Answer
Qualifying income = Net business income + add-backs + net rental income = $60,000 + $12,000 + ($18,000 - $6,000) = $84,000 annually ÷ 12 months = $7,000 monthly. However, lenders typically use 75% of net rental income, so: ($60,000 + $12,000 + ($12,000 × 0.75)) ÷ 12 = $90,000 ÷ 12 = $7,500.
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