Rental offset refers to the portion of rental income a lender permits a borrower to subtract from their housing costs.
The bigger the percentage, the easier it is to qualify for a mortgage. Rental offsets are usually 50-80%, but a small number of lenders allow up to 100% on uninsured mortgages.
Here’s how rental offset is used when calculating a borrower’s total debt service (TDS) ratio:
( PITH + Other Debts – ( Rental Offset x Rental Income ) ) / Borrower Income
PITH = Principal, interest, property taxes, heat, and 1/2 of condo fees.