Key Takeaways
- Lenders may count 75% of boarder income for mortgage qualification.
- Borrowers should expect to show a 2-year history of receiving boarder income.
- Proper documentation of boarder income is typically required by lenders.
- Boarder income can help offset mortgage payments and living costs.
Article Summary
Boarder income is a homeowner's earnings from people who rent and live in spare rooms or sections of a home.
Boarder Income: Explained in Plain English
In real estate, boarder income is the revenue a homeowner earns for housing tenants, known as boarders, within their residential property. Boarder income is common in single-family homes where extra rooms or separate living areas are rented.
Unlike traditional rental income, which is earned when an entire property is leased to a renter, boarder income refers to rent payments received when the renter cohabitates with the owner.
The most common boarder income scenario is when a homeowner rents out one or more spare bedrooms to students, professionals, or short-term lodgers, and shares common areas like the kitchen and living room with the boarders.
Other boarder income scenarios include:
- Renting a self-contained basement unit or accessory dwelling unit to a renter
- Renting a room to a family member through an informal rental agreement
Boarder income is a common way for homeowners to supplement household income, offset mortgage payments, or cover home maintenance costs. Boarder income can also help in qualifying for a mortgage.
Homeowners who receive boarder income are expected to declare it for tax purposes and ensure their home meets local housing laws and standards.
Boarder Income: A Real World Example
Consider a first-time home buyer in a college town with an extra bedroom over the garage, equipped with its own bathroom and living space. The room presents an opportunity to house a student needing affordable housing, generating income to help offset the mortgage.
The homeowner sets up the room and offers it for rent.
The arrangement benefits both parties: the student gets affordable accommodations near campus, and the homeowner receives income to cover part or all of the mortgage, reducing financial burdens.
Common Questions About Boarder Income
Frequently asked questions about boarder income and how it works for home buyers.
What constitutes boarder income in real estate?
Boarder income is the money received from renting a room or space within a homeowner's residence. It differs from standard rental income, where an entire property is leased out.
Is boarder income taxable?
Yes, boarder income is typically taxable. Homeowners are expected to declare it on their tax returns and may be eligible for tax deductions related to the rented space. Consult an accountant for advice.
Will boarder income help with a mortgage application?
Yes, some mortgage programs such as HomeReady and Home Possible consider boarder income as part of a home buyer's mortgage application. FHA loans also consider boarder income.
Are there legal considerations for earning boarder income?
Yes, homeowners should be aware of local zoning laws, rental regulations, and housing standards when renting out part of their residence. Compliance with these laws is crucial to avoid legal issues.
