Fannie Mae Change of Rules

6 Replies

Yesterday I was signing my closing papers for a refi on my primary and my mortgage broker mentioned that Fannie Mae has just changed their rules about 2 years minimum to count rental income.  He said they are now counting a signed lease as income even if you haven't been a landlord for 2 years.  He is still digging into the details of the change, but I wanted to see if anyone else has heard about this?

There have always been several levels of approval with Fannie Mae.  One approval may require two years work history, while another may only require one year of tax returns.  The same situation works for rental history.  If your credit and assets are good enough, YOU may not be required to have a two year rental history, while another borrower may.

Yes, You can use 75% of the proven (show leases) income if it's been less than 2 years. If it's been on 1 tax return, you would use the tax return and leases to figure the effective lease rate and expenses.

Originally posted by @Robert Sepulveda :

Yes, You can use 75% of the proven (show leases) income if it's been less than 2 years. If it's been on 1 tax return, you would use the tax return and leases to figure the effective lease rate and expenses.

@Robert Sepulveda: 

I noticed in your signature that you are in the lending business. What has been your experience with investors who have a good base D/I ratio, but then start to accumulate cash-flowing investment properties that are mortgaged and shown on their Tax Return (Schedule E). In my case, my base D/I ratio excluding investments is ~35%. However, the D/I profile of my two investment propertie as a stand-alone is ~60-70%. Assuming that I acquire more of these types of properties (residential multi-family) my D/I ratio will be further diluted and perhaps may breach above 45-50%. Do underwriters treat the investment debt separately from my base D/I measure or does my base salary/income have to keep everything afloat and within the 45% D/I threshold? 

Appreciate your input.

Yes, it is possible to use lease as proof of rental income.  Banks usually counts 75% of rental income as @Robert Sepulveda says.

Click here for the actual Fannie Mae section which answers your question, specifically under "Documenting Rental Income from Subject Property" section.

That said, just the fact Fannie Mae allows it doesn't necessarily mean that YOUR BANK allows it, as banks have their rights to impose stricter guidelines than Fannie Mae does.  A lot of bigger banks (Citi, Wells Fargo, TD) require two years worth of tax return, not just lease, so definitely ask the bank reps (better yet, the mortgage development officers) first before applying.

@Louis A.

 sorry for the delay in response. I get dirty looks on sunday if I'm on the computer. 

Your base income AND your income calculations for your lease properties are all included in your DTI calculation.

However, what's on your schedule E deductions can be added back as income in your total rental property worksheet (depreciation, taxes, insurance, interest). These can offset your total deductions to have the rental property take care of the debt service and carry as much of it's own weight as possible, when it comes to your DTI. Always talk to someone who knows their way around a schedule E and can give you the most credit toward your dti.

Originally posted by @Robert Sepulveda :

@Louis Arzon

 sorry for the delay in response. I get dirty looks on sunday if I'm on the computer. 

Your base income AND your income calculations for your lease properties are all included in your DTI calculation.

However, what's on your schedule E deductions can be added back as income in your total rental property worksheet (depreciation, taxes, insurance, interest). These can offset your total deductions to have the rental property take care of the debt service and carry as much of it's own weight as possible, when it comes to your DTI. Always talk to someone who knows their way around a schedule E and can give you the most credit toward your dti.

 Thank you Robert -- Good advice!

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