A borrower contacted us yesterday after he was denied financing by his bank. The borrower is buying a new home, and renting out his current home.
The borrower cannot qualify for a new home without using the potential rental income from his current home to help qualify. His bank, however, told him he was not allowed to use the rental income to qualify until the rental income appears on “at least one year’s tax returns.” In other words, the bank wanted proof of “landlord history.”
The bank clearly has an “overlay,” over and above Fannie/Freddie requirements. We have yet to see Fannie/Freddie disallow the use of rental income on a departing residence as long as there is sufficient equity (“30% cushion”).
Borrowers buying Investment Properties can usually use the potential rent from the investment properties to qualify as well. The “Rental History” requirement only pops up with relatively young or unseasoned borrowers.
The only caveat to the use of rental income is that lenders now correlate to “Market Rent,” as supported by a formal “Rent Survey.” Actual rents are irrelevant when they exceed “Market Rents.”
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646