Home Buying in 95401>Question Details

David B, Home Buyer in 95401

Rules for counting rental income

Asked by David B, 95401 Wed May 9, 2012

I own a home with a granny unit which I have rented out for the last 12 years.
I now want to purchase another property to become my primary residence. I would then rent out my current home and granny unit.

I have shown the granny unit income on my tax return.

I do not have 30% equity in my current home. The lender I am working with says without
that 30% equity, they will not count any rental income.

Is this accurate for all lenders? I know that Fanny and Freddie have tightened up the rules, and
this lender will sell the loan right away so they don't want to have anything out of the ordinary.

The owner of the new property would carry the loan for at least one year, so I would be able to document the rental of current house for at least one year, and the granny unit would be 13 years. So I think I would establish landlord history.

I am trying to find out if a year from now I won't be able to get long term lending.

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Answers

4
We frequently work with a national lender called Security National Mortgage when working with Real Estate investors that buy and rent single family homes. They accept rental income on loans with 80% LTV. They are a great company to work with and are direct Fanny and Freddie lenders.
0 votes Thank Flag Link Thu Aug 28, 2014
You being told correctly. Without the minimum equity, you will need to qualify for the new loan counting total housing expense for both properties in your debt to income calculations. There's another problem also, if you had the equity (or will have it in the future) you may not be able to count the income from the granny unit either. This will depend on how your property is classified by county records as either a SFR with accessory, or 2 unit. If it's 2 unit, you can use all rental income--if it's the former, you may not count the rental income from the granny.
0 votes Thank Flag Link Wed May 9, 2012
My lender (a local bank) counts 75% of the income from all active leases as part of my income when figuring debt to income ratios. I'd suggest you shop around to see what different lenders have to say.

I don't like the idea of buying your new house without a seller carried mortgage for 1 year. What happens if you can't find financing after 1 year?

Here's an idea. Lease the home you want to buy with an option to buy it. Then your not locked into anything if financing doesn't workout, and you'll have time to get your current property rented and show some history.

Good luck.
0 votes Thank Flag Link Wed May 9, 2012
I think the best advice is to shop around with various, reputable lenders to find out what their guidelines are: Mortgage Brokers, Mortgage Bankers, Credit Unions, local or regional banks and 'Big Box' lenders like Wells Fargo. If you are working with real estate agent/broker on the purchase of the home you want to buy, they should be able to refer someone to you. If you are not working with an agent/broker, please feel free to contact me at 707-541-2345 or csaxon@rpadvisors.com. What the lender will or won't accept as income will depend on their own guidelines and, as you suggest, whoever they re-sell the note to: Fannie, Freddie or private investors. Right now loan originators (whoever takes and processes your loan application) are very concerned about having to buy back loans they have sold if the loan goes bad and the borrower defaults.
0 votes Thank Flag Link Wed May 9, 2012
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