Here is some important info about using rental payment history and rental income to qualify.
GREAT NEWS: “DU” USES RENT PAYMENTS NOW
On the good news front, Fannie Mae announced last month that its automated underwriting system (DU) will now take into account rental-payment-histories, to make it easier for renters to become homeowners.
Here is Fannie’s press release.
USING RENTAL INCOME TO QUALIFY
Borrowers who own or are purchasing rental properties can also use rental income to qualify in the following circumstances:
- BOUGHT PROPERTY IN THE LAST YEAR: For borrowers who purchased properties in the last year (so the rental income is not yet on the tax returns), we simply provide proof of a security deposit and a signed lease, and we can then use 75% of the rental income on that lease agreement to help borrowers qualify for financing. This always works for conforming loans but not always for jumbo (depends on investor/jumbo lender).
- ON TAX RETURNS: If the rental income is on the tax returns, we have to correlate to them (using Schedule E). Lenders will still, however, require lease agreements to make sure there are renters actually in the property.
- BUYING INVESTMENT PROPERTY: If a borrower is buying an investment property, we can use 75% of the future “market rent” (“market rent” must be corroborated by an appraiser) if the property is vacant. If the property is currently tenant-occupied, we will need a copy of the lease agreement and will use 75% of the current rent.
- LANDLORD HISTORIES: Many jumbo lenders require proof (usually via tax returns) that borrowers have experience (one year or more) as a landlord before they will allow a borrower to use rental income to qualify. This too is something borrowers should discuss with their lenders.
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