Purchasing a property for rental purposes? What you need to know about Rental Add-Back vs Rental Offset

Knowing about rental add-backs vs rental offsets in mortgages is critical to purchasing rental properties. Renting out a property is a great way to earn passive income, but it’s also a complex process involving many financial calculations.  The article below will discuss what you must know about add-backs and offsets when purchasing a rental property.

Rental Add-Backs

Whenever you apply for a mortgage to purchase a rental property, the lender will consider a portion of the rental income you expect to receive as a source of income. However, the lender will also consider your expenses related to the rental property, such as property taxes, insurance, maintenance costs, and management fees. These expenses reduce your net rental income, which is the income you have left after subtracting expenses.

Add-backs are a portion of rental income the lender can add back to your net income when calculating your total income for mortgage qualification purposes. 

By adding back a portion of the rental income to your net income, the lender can increase your total income and improve your chances of qualifying for a mortgage. 

The add-back amounts the lenders allow vary from 50% to 100% of the rental income by lenders.

Rental Offsets

Rental Offsets are when the lender subtracts the rental expenses from your net rental income when calculating your total income for mortgage qualification purposes. 

These expenses include mortgage payments, property tax and heat for the rental property, and the surplus of the rental income will be added to your total income.

Typically, Rental Offsets decrease your debt service ratios more effectively than add back, making qualifying for a mortgage easier. 


Addbacks and offsets can be helpful when trying to qualify for a mortgage on a rental investment property. The add-back method considers the total rental income, including vacancy and maintenance expenses, when analyzing the borrower’s ability to repay the loan. On the other hand, offsets are alternate sources of debt that can be used as additional collateral if needed; these include credit cards, consumer loans, and other mortgages. Either way, most lenders will only consider 50% of these types of income when calculating how much you can borrow for a rental property – this is not always enough to make an investment opportunity work.
As a broker and investor, I understand how frustrating it can be to get approved when you have bases covered but still need to catch up due to a lender’s 50% rule. Fortunately, there are ways around this – if your employment income is substantial enough combined with a more significant down payment or additional collateral, you might still qualify even with the limited 50%. It is also essential to understand any legal implications that may arise from purchasing a rental property in your area, such as tax implications or zoning regulations; both play crucial parts in ensuring your investment works out.

Add-backs and offsets are essential concepts to understand when buying a rental property. By knowing how these concepts affect your income and expenses, you can make informed decisions about your mortgage options and improve your chances of qualifying.

Documentation may be required to verify that you have the resources to cover your debt payments while still being able to pay the mortgage on your rental property.

If you have questions about add-backs and offsets, your best bet is to consult a qualified mortgage broker who can assist you and assist you in making the best financial decisions.

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