Determining Rental Income for a Conforming Mortgage

iStock-000018668640XSmallRecently Fannie Mae updated their guidelines for rental income, including the addition of Rental Income Worksheets for the lender to complete to help make sure the rental income is calculated correctly. How much rental income may be used and how it is calculated will depend on when the borrower obtained the rental property, when rents were collected and what how many units there are with the subject property. Underwriters are looking the likelihood that the rental income will continue as well as the losses too. If your rental is producing a net loss, that will factored into your qualifying ratios.

Here are some basic guidelines for determining rental income.

 Calculating rental income when the property is being purchased.

  • If the property is leased, then copies of the current signed lease agreements may be required.
  • If the property is not currently leased, then the lender may use “market rent” information provided by the appraiser.
  • When there is no rental income for the subject property on the borrowers tax returns, the rental income will be reduced to 75% of the gross rental income provided on the lease.

Calculating rental income when the subject property is being refinanced.

  • Copies of the fully executed lease agreements must be provided (assuming the home is currently rented).
  • If the borrower owned the property during the previous year, they will need to provide tax returns. The lender will use the information provided on Schedule E to determine the net rental income/loss.
  • If the property was rented for a portion of the previous year, the lender will still need to provide a copy of the tax returns, including Schedule E. The borrower will also need to explain (and document) why the home was not rented for the full year.  For example, was the home recently purchased or out of service to be renovated.
  • Rental income will be averaged based on the months the home was in service the previous year.
  • The lender may also rely on “market rent” data from the appraisal.

What if you’re converting your existing home into a rental to buy another home?

  • If the home being converted has less than 30% equity, as determined by an appraisal ordered by the lender, then no rental credit may be used. The borrower will need to qualify for both mortgage payments.
  • If the home being covered has at least 30% equity, the rental income may be used if you can provide:
    • fully executed lease agreement;
    • proof of security deposit from the tenant (cancelled check); and
    • bank statement showing the deposited security deposit.

If you are interested in buying or refinancing an investment property located anywhere in Washington state, I’m happy to help you! Click here for a mortgage rate quote.

 

Don’t be naughty to your preapproval status over the holidays

iStock_000004639657XSmall[1]If you are currently preappoved for a mortgage to buy a home or are considering getting a mortgage in the New Year, what you do now with regards to your credit and income may impact your preapproval status.

A mortgage preapproval is based on information provided at the time of the pre-application. It is only valid assuming that the information provided at that time has not changed. You may not be aware that you’ve done something that may have jeopardized your preapproval until a month or two later when you’re getting ready to make an offer on a home and then learn you’ve been Scrooged.

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What May Impact Mortgage Rates this Week: November 17, 2014

mortgageporter-economyThis morning, Japan announced their GDP (gross domestic product) continues to decline, giving US mortgage bonds a slight boost.  This week has a lot of economic indicators scheduled to be released that could impact the direction of mortgage rates. Keep an eye out for data that reveals inflation, as that will cause mortgage rates to trend higher.

Currently mortgage rates are continuing to improve (see below) compared to last week’s mortgage rate post.

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What May Impact Mortgage Rates this Week: November 10, 2014

mortgageporter-economyThis is a short week with Veterans Day on Tuesday (bond markets will be closed) and a light economic calendar. Rates are improved compared to what I quoted last Monday.

  • Tuesday, November 11, 2014: Veterans Day.
  • Thursday, November, 13, 2014: Initial Jobless Claims
  • Friday, November 14, 2014: Retail Sales; and  Consumer Sentiment (UoM)
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The 2014 Outstanding Loan Originator is…

2014-11-07 21.02.42 I am honored, humbled and amazed to be a finalist in three categories at this year’s Business and Humanitarian Awards Gala, which took place on Friday. This annual event is organized by the Washington Association of Mortgage Professionals to recognize Washington real estate professionals (mortgage, real estate brokers, title and escrow) who are the epitome of their profession.

To receive the award for Outstanding Loan Originator was a complete surprise to me, despite being a finalist. I wish I would have prepared something to say when the award was presented. Between the shock, the bright lights and the 200 plus glamorous faces staring up at me, I was almost rendered speechless.

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Reduced Down Payment Conventional Loans may require Compensating Factors

Mel_WattMel Watt, Director of the FHFA, has released his prepared remarks for the National Association of Realtors Conference. In his remarks, he addresses the lower down payment options that should be available soon with conforming mortgages and that they will require compensating factors.

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Home Buyers Seminar in Northgate

Seattle Home Buyer Classes

I will be teaching a home buyer class in Seattle with Jim Repppond of Coldwell Banker Danforth on Saturday, November 15, 2014 at the Coldwell Banker Danforth’s Seattle office, which is located just south of the Northgate Mall.

The class is sponsored by the Washington State Housing Finance Commission. Students who attend are eligible for programs like Home Advantage or House Key Opportunity (the Washington state bond program) or Freddie Mac Home Possible. Students are also eligible for various down payment assistance programs and MCC (mortgage credit certificates).

If you are considering buying a home with your spouse, partner or friend, they will need to attend the class with you to qualify for the programs.  You do not need to be a first time home buyer to qualify for many of the mortgage programs. And of course, you’re welcome to attend if you’re not interested in down payment assistance programs and you just want to learn more about the home buying process. [Read more…]

What May Impact Mortgage Rates this Week: November 3, 2014

MortgagePorter-JobsReportBlack Knight Financial Services says at least 7.4 million mortgages should refinance, due to where rates are today and looking at borrowers with current notes at 4.5% and above. This may also be a good time to refi into a conventional mortgage if you have an FHA mortgage with a rate in 3% range with expensive FHA mortgage insurance.

Last week the Fed formally wrapped up their aggressive buying of mortgage backed securities (QE) which helped to keep mortgage rates at such a low level over the past couple of years. This was not a surprise to the markets as the Fed had continuously reiterated their plans to end QE in October. Mortgage rates seem to be slowly trending higher.

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