Treatment of rental income
We are looking at purchasing a new home and renting out the old home.
I know that the new rules state that I need 70% equity in the old house in order to use 75% of the rental income to offset the mortgage. I can't find a clear answer on exactly what "offset" means
Does offset mean that the income is taken directly from the mortgage and I only have to qualify for any shortage. For example if rent is $1000, PITI is $1000, I would only have to add $250 to the "other debt" column to determine eligibility?
Or does offset mean $750 counts as "other income" and $1000 goes in the "other debt" column. After the ratios are calculated, that takes a pretty big chunk out of the qualification amount.
I've seen it listed both ways on the internet.
Thanks in advance for any response