If you are applying for a home loan written to FNMA or FMAC guidelines (i.e., not a commercial loan), the underwriting rules are set forth by the above-mentioned agencies. My understanding, as of a couple of years ago, is that a fraction of the gross monthly rent IS considered to be income for purposes of computing ratios. I do not remember the fraction, but it was something like 50%.
Remember, the lender is most interested in YOU, and secondarily interested in the property. If you were to experience an extended period of vacancy, could you handle the debt load? Vacancy happens, everywhere. No place is immune. If your financial situation makes it clear that you would be unable to handle the debt load without the rents, then you present more risk to the bank than does another candidate who could handle the situation.
I have a seller that is looking for an offer from me to purchase his duplex. He has tenants in both sides, each with a 12-month lease. I’m trying to find a way to qualify for a mortgage so I can make him an offer.
I would like for a lender to offset the mortgage payments against the rents (less 25% of course) to determine the net income (loss) that would be added to my paycheck from my job. (Full-doc NOO)
I’ve been told by two different lenders that the rent payments CANNOT be considered in the calculation of my debt ratio. This is another way of saying that I have to be able to qualify for the house payment on my home AND the house payment on an additional property, as if it were a vacation home.
Is it standard that the leases that are purchases with the rental property will not be considered by lenders, or have I been misinformed?
Re: How can rents be counted as income? - Posted by Shambhu Nath
Posted by Shambhu Nath on August 14, 2005 at 14:51:32:
Somelenders do not consider your rental income if you donot have two year land lord experience. Subprime lender take 75 % to 90 %( O/O duplex will be 90 %) of rent income but FAnnie mae requires two year experience. So it depends who is the investor for your loan and what are their guidelines.
Re: How can rents be counted as income? - Posted by Ed Garcia
Posted by Ed Garcia on August 14, 2005 at 12:18:15:
Tim,
No matter what lender you use they should all know that you get credit for the rents when purchasing an NOO property. I?m suspicious of either a communication breakdown between you and your brokers, the brokers don?t know what they are doing, or the brokers are using that as an excuse and there are other factors of income verification that the brokers don?t want to go into because you are looking for a NOO with a high LTV.
Bottom line, is that rental income of a property is considered when doing a deal.
You need to talk to another lender or a brokerage firm that deals with lenders that specialize in investment loans.
Plenty of lenders will accept a portion of the rental income to help with offseting the new mortgage and qualifying for the loan.
Some will accept a copy of the lease as proof and others might require a Form 216 (Operating Income and assesses the market rent of the subject’s property)to be completed by the appraiser, or perhaps both.
Re: How can rents be counted as income? - Posted by James Harris
Posted by James Harris on August 13, 2005 at 22:47:41:
Perhaps the only way that rental income from a ivestment be used to buy a property is that you may have to go stated income. In which you don’t have to verify sources of income. And that is if your credit scores are good enough to get the interest rate yhat would be favourable.
Re: How can rents be counted as income? - Posted by Don Dion
Posted by Don Dion on August 13, 2005 at 11:39:05:
Since this is a duplex it’s residential and Fannie or Freddie will handle the income as follows:
10% rent loss for vacancy the balance will be added to your income as other income. They will add up the P&I taxes assoc dues insurance pmi ect to get a total payment. Then div the total payment by the total income per month that your showing including the allowable rental income to get the top ratio which should be 33% or lower. They they will add your monthly debt to the payment and div by your total income again to get the bottom ratio which should be lower then 40%. With most Fannie or Freddie loans you have to put down 20% to 25% depending on the lender you go thru and the program avail is limited in most cases to the 30yr fixed product. Hope this helps.