How is net rental income calculated when analyzing borrower qualifying ratios?

1. Subtract the monthly payment (PITI) from the monthly net rental income  of the subject property (gross rents, minus the 25 percent reduction or HOC's percentage reduction for vacancies and repairs). If this calculation yields a positive number, add the number to the borrower's monthly gross income  If the calculation results in a negative number, consider it a recurring monthly obligation; then

2. Calculate the mortgage payment-to-income ratio (top or front-end ratio) by dividing the borrower's current housing expense (principal residence) by the monthly gross income . (The monthly gross income  will include any positive cash flow from the subject investment property.); and

3. Calculate the total fixed payment-to- income ratio (bottom or back-end ratio) by dividing the borrower's total monthly obligations, including any net loss from the subject investment property, by the borrower's total monthly gross income.
Handbook 4155.1: 4.E.4.f

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