Using Potential Rental Income for Purchasing a Duplex
Hi everyone,
Pretty much every blog or every podcast I listen to here mentions that you should "house hack" and "live in one side and rent out the other." In detailing the advantages of doing this they go on to say that you can count the potential earnings of the duplex's side you are not living in to help you qualify for the loan.
Ex: https://www.biggerpockets.com/renewsblog/becoming-a-landlord-the-easy-way/
Every lender in my state of IL has said that their rules for Fannie Mae do not allow you to count potential earnings on the rental to qualify. Instead they will allow you to use the rental after a year to refi the loan.
Has anyone ran into this? The duplex I was trying to purchase was vacant so that's why it didn't work. Had they counted the income from the rental, I would have qualified for the deal. How am I supposed to purchase this home when I need to own the home to lease it and qualify for the loan?
Most Popular Reply
You're encountering a combination of overlays and lenders that aren't REI friendly.
Use of rental income to qualify is not part of our official education, licensing, training, nor is it on the test you have to pass to get your license as a lender. You can go a full successful 30 year career without learning how to use rental income to qualify folks.
It is, unfortunately, common for lenders to blame Fannie Mae for their own overlays or lack of knowledge. Check out the below, directly from fanniemae.com:
Form 1007 is the rent roll component of the appraisal (& why the appraisal on a rental property using rental income to qualify may be a few hundred bucks more expensive). Rent from vacant units can be counted on a purchase mortgage.
The good news is that, moving forward, you now have what you need to qualify the lender as REI friendly in about 30 seconds. Dial for dollars, find a REI friendly lender licensed to do business in your state. You know exactly what to ask, and what the real guideline from fanniemae.com actually says.