DTI & The "2 Year Landlord Experience" Rule?

8 Replies

I'm a new investor and am just now building up my portfolio. I converted my first primary residence into a rental back in October of 2014 so I have only been renting it out for 6 months.

I'm purchasing another in a few weeks and when looking for a 3rd, I've started to run up against DTI issues. I've heard from the lender and from others on BP that I need to rent for two years until a lender will count rental income.

Can someone help me understand this rule better? I couldn't find much on BP or the internet. Specifically:

  • Once I have two years of landlord experience, will a lender count income from all my properties or does it take two years for each property to count?
  • I'm considering selling the original property because it doesn't cashflow well, but if I do so will that reset the 2 year "timer" or will it keep going as long as I have another rental?

Thanks everyone. I'm learning a lot from BP so far and appreciate everyone's time.

I am not an expert, but I think it is 2 years per property.

You might be able to find private money sources in your area to get financing until you can get approved by the banks.

@Mitch Rice

@Neil Aggarwal

Freddie Mac requires 2 years of Landlord Experience and Fannie Mae Doesn't require any time at all.

I hope this helps and have a great day.

@Shaun Weeks Thanks. Can you confirm that it's 2 years total landlord experience and not 2 years for each individual property?

@Mitch Rice  

If the lender has the ability to choose just Fannie Mae and not Freddie Mac then you don't need any rental history. 75% of lease agreement is used prior to reflecting on tax returns and 100% of net rental income is used if the rentals are reflected on your tax returns. 

Its 2 years of landlord experience. Not per home.

I hope this helps and have a good one.

Ill second what Shaun said, though it really depends on the lending institution. A credit union that I recently started using needs only two years of landlord experience, not two years for each property. After two years of landlord experience documented on your 1040 if you want to use additional properties that you own towards lowering your DTI you have to present a signed lease *AND* a cancelled check from the renters to show proof. With those they will use 75% of the projected rent towards your income.

Thanks again for all the info, gents!

I used to be a small business underwriter at a regional bank and we would typically just look for two years of rental income on your tax returns. If you were trying to finance a rental property but didn't have at least two years of experience with rentals then we considered you a "start up." As you can imagine, banks aren't typically very fond of start ups. I'm sure it's different at each bank, but in my experience we just wanted to make sure you were experienced and knew what you were doing.

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