Financing in 08108>Question Details

Shawn Burke, Real Estate Pro in Cherry Hill, NJ

With all of the new rules and regulations in today's finance market, can rental income from an owner-occupied duplex be used for a VA refinance?

Asked by Shawn Burke, Cherry Hill, NJ Mon Sep 17, 2012

I have a client that is presently living in a duplex that he purchased 8 months ago. He lives in one unit, and recently rented the other unit for market price. He is a veteran that would like to refinance his FHA mortgage with a VA loan to get rid of the $240 MIP each month. He has great income and credit, but he has taken on additional consumer credit since purchasing the home, and therefore his debt/income ratios may be a "bit off" right now (50%). Can the new rental income be used to help qualify for a VA refinance?

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VA has slightly different guidelines for using rental income to qualify vs. FHA or conventional.

Straight from VA Pamphlet 26-7 Ch. 4 at http://www.benefits.va.gov/warms/pam26_7.asp

Verification: Multi-Unit Property Securing the VA Loan
· cash reserves totaling at least 6 months mortgage payments (principal, interest, taxes, and insurance - PITI), and
· documentation of the applicant’s prior experience managing rental units or other background involving both property maintenance and rental.

What that means is if someone wants to use the rental income for qualifying income, then they'll need a 2 year history of being a landlord or property manager as well as 6 months cash reserves of the proposed PITI payment. The 2 year prior experience doesn't need to be on the subject property, it could be for a different rental property the homeowner owns or a prior one that they have owned, but either way verification is needed (i.e. tax returns showing rental income on Schedule E).

Even if the rental income in question cannot be used to qualify, debt ratios of ~50% are able to qualify for VA mortgages. VA is more concerned with residual income requirements and does not have a maximum debt ratio, but a lot of lenders have overlay guidelines not to permit more than a maximum debt ratio (50%, 55% & 60% are common maximums).

Shane Milne | Lending in all 50 states | NMLS #81195
1 vote Thank Flag Link Mon Sep 17, 2012
Hello Shawn,
Thanks for your question.
This should be answered by a loan officer. You could contact William De La Torre at Wells Fargo. 856-562-2286 or william.delatorre@wellsfargo.com or any other you like.
My understanding is that he may have to be seasoned a Landlord (1 year experience receiving rent) or have 6 months rent in the bank but check it with a mortgage representative better.
Good luck with your client.
Take care,
Ines De La Cruz
RE/MAX Connection
http://www.inesdelacruz.com
Let us know.
0 votes Thank Flag Link Mon Sep 17, 2012
Hey Shawn, emai Mike McKeown at mike.mckeown@mindspring.com

He's a Sr Loan Officer with Alled Mortgage Group in Voorhees. Tell him I sent you.
Web Reference: http://kurfiss.com
0 votes Thank Flag Link Mon Sep 17, 2012
Shawn, this sounds like a lender question for sure! Have your client check with a lender. Some local banks are very helpful also, there is one in Collingswood area, 1st Colonial.
Let us know how you make out with that so we all gain some helpful knowledge!
0 votes Thank Flag Link Mon Sep 17, 2012
check with your mortgage officer but usually a percent of it can be used.
0 votes Thank Flag Link Mon Sep 17, 2012
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