Has anyone had any experience with getting around the seasoning requirements for rental income? With the properties we own, all of which are financed, we have reached our max debt to income ratio. From what we understand, the banks will not allow us to count the rental income until we have owned the properties for 2 years each (shown by tax returns). All of our houses are cash flowing and we want to work with a bank who will qualify us based on our experience, not these arbitrary rules. At this point, we are limited not by the number of houses, but by the amount of debt we can carry. Any thoughts would be appreciated. We are in the Charlotte NC market so if anyone has any local knowledge and/or experience, it would be much appreciated.
Hello Paul,
Fannie doesn't have a two year rule on rental income.
If your shedule E is showing a loss it will hurt your DTI and if it's showing possitive it will help you depending on your schedule E calculations ( How the UW calculates the income ) If you have a wage earner job and say for example that you're making 48K a year. That's 4k a month but say your schedule E after income calculations is showing -750. You're making $3,250.00, so you could be cash flowing but if you're claiming losses it could really hurt you. I've seen this on a lot of 1040's. So look over your 1040's and see what they look like. If you see a - besideschedule E on page 1 of your 1040's it could be the issue. If you're mortgage payment is high after schedule E calculations you still could be in trouble. I will contact you to explain this further as rental income has so many variables.
I hope this helps.
Hello Paul! I am new to biggerPockets and to real estate but I can offer you some advice. to the extent of my knowledge, you can increase your debt ratio refinancing your properties. If you are unfamiliar with re-financing properties, it essentially means that you renovate your existing property (fresh paint, add rooms, new carpet, etc) to enhance its value and then you have the value re-appraised. If the new value of the property or properties is higher than its value at the time you took out a mortgage then you can refinance the property at a bank to take out a larger loan on the existing property to pay off your old loan and take out a new larger loan which you can use to invest in other properties.
Good luck!
Hello Paul,
Fannie doesn't have a two year rule on rental income.
If your shedule E is showing a loss it will hurt your DTI and if it's showing possitive it will help you depending on your schedule E calculations ( How the UW calculates the income ) If you have a wage earner job and say for example that you're making 48K a year. That's 4k a month but say your schedule E after income calculations is showing -750. You're making $3,250.00, so you could be cash flowing but if you're claiming losses it could really hurt you. I've seen this on a lot of 1040's. So look over your 1040's and see what they look like. If you see a - besideschedule E on page 1 of your 1040's it could be the issue. If you're mortgage payment is high after schedule E calculations you still could be in trouble. I will contact you to explain this further as rental income has so many variables.
I hope this helps.
Has anyone had any experience with getting around the seasoning requirements for rental income? With the properties we own, all of which are financed, we have reached our max debt to income ratio. From what we understand, the banks will not allow us to count the rental income until we have owned the properties for 2 years each (shown by tax returns). All of our houses are cash flowing and we want to work with a bank who will qualify us based on our experience, not these arbitrary rules. At this point, we are limited not by the number of houses, but by the amount of debt we can carry. Any thoughts would be appreciated. We are in the Charlotte NC market so if anyone has any local knowledge and/or experience, it would be much appreciated.
If you have mortgages on these properties, they will report on your credit. If they report on your credit report, they come up as liabilities that you are accountable for. Since it sounds like you plan on using your positive cash-flow as a source of income, the underwriter will want to see what your schedule E looks like on your 1040 or personal returns. They will look at what you claim as income plus what your overall tax deductibility status looks like on that asset. To be a homeowner in this wonderful country we live in, means that you have certain allowances that you can get that are known as tax write-offs. You're allowed to annually get a tax break on certain expenses such as the mortgage interest and insurance you pay on your property, even the depreciation your property goes through. If after all the calculations and income adjustments have been made and you are still showing positive cash-flow, then any savvy processor knows they can make a case to an underwriter for a judgement call. More often than not, after all adjustments have been made, there isn't a significant amount that you can claim as income on your application. Don't consider yourself limited by guidelines at this point. Its more of the "bigger picture" that any seasoned underwriter will be concerned with. I would have a seasoned mortgage banker run some numbers for you and take a deeper look into what your tax returns look like.
@Paul S. .. Have you spoke with your banker yet? I'm in the middle of a cash out refi currently. They said they can use my rental income and if your referring to seasoning in regards to cashing out its 6 months for fair value. Last year all the lenders told me 1 year even though Fannie only wanted 6 months. Now they are willing to do 6 months. Also, I just spoke with bb&t yesterday (and this may not apply to you) but they said they are starting to allow individuals to get conventional financing in the name of an llc. Supposedly they all got a memo in May of this year saying Fannie will allow it. It's called " non individual borrower." Always nice to meet more charlotte investors
Thanks everyone for your very helpful comments! First let me give a bit of clarification. I am not trying to refinance my properties as I just recently purchased them. I just closed on one property this March and another this April so schedule E's do not exist yet. They are both rented and cash flowing. I also have my personal house. The 3 of these count against my monthly debt in the debt to income ratio. So let's say I want to go buy another house tomorrow. I am being told by banks that I cannot count the rental income from the two I just purchased and as a result my DTI is close to maxed out.
After reading all of your input, I went back and read the Fannie Mae guidelines in section B3-3.1-08 on counting rental income/loss in DTI. It says that if a schedule E does not exist then current leases can be used but only 75% of the rental income can be used toward DTI. So this sounds pretty positive and not very limiting.
Maybe my issue is in specific bank rules and not Fannie Mae? TD bank told me directly that they would not let me count the income for two years. My wife called another bank today and they said they require one year. This is what I mean by seasoning (if that is the right term). If I have to wait one or two years before buying each property then my real estate plan is going to hit a brick wall.
Is it possible that banks add additional restrictions on top of Fannie Mae? Are some banks more flexible than others? Or am I just talking to the wrong (unqualified or confused) people at the banks I am talking to?
Thanks in advance for any additional feedback.
Thanks everyone for your very helpful comments! First let me give a bit of clarification. I am not trying to refinance my properties as I just recently purchased them. I just closed on one property this March and another this April so schedule E's do not exist yet. They are both rented and cash flowing. I also have my personal house. The 3 of these count against my monthly debt in the debt to income ratio. So let's say I want to go buy another house tomorrow. I am being told by banks that I cannot count the rental income from the two I just purchased and as a result my DTI is close to maxed out.
After reading all of your input, I went back and read the Fannie Mae guidelines in section B3-3.1-08 on counting rental income/loss in DTI. It says that if a schedule E does not exist then current leases can be used but only 75% of the rental income can be used toward DTI. So this sounds pretty positive and not very limiting.
Maybe my issue is in specific bank rules and not Fannie Mae? TD bank told me directly that they would not let me count the income for two years. My wife called another bank today and they said they require one year. This is what I mean by seasoning (if that is the right term). If I have to wait one or two years before buying each property then my real estate plan is going to hit a brick wall.
Is it possible that banks add additional restrictions on top of Fannie Mae? Are some banks more flexible than others? Or am I just talking to the wrong (unqualified or confused) people at the banks I am talking to?
Thanks in advance for any additional feedback.
If the property is self sustaining, or even profitable, the profitable income earned can immediately have a positive impact on your DTI ratio. The discrepancy here is that you are speaking to bankers of all different sorts. Some have been in the industry for many years and are used to the traditional methods of processing and underwriting and often will give you what their recollection of the guidelines are. Some have been in the industry for less than a year and don't have enough real world experience when it comes to dealing with underwriters, so they wouldn't know how to present the file and get certain conditions waived or considered to the borrowers advantage. Then there are a small percentage of bankers and processors who know exactly what they're doing and will give you the correct information the first time. Guidelines are important but underwriters are always going to look at the "bigger picture". Two processors can process the same file and get a completely different set of conditions. With that in mind, its all about making a case for yourself. Bank statements, cancelled rent checks, lease contracts etc. can all help you when it comes to your application. Do some research so you can get in touch with a seasoned banker who will guide you in the right direction.