PSA - 12/7/19: Guideline Change that will Live in Infamy
Wanted to put word out about this. It will primarily impact people who do not pay rent or a personal housing expense. Examples:
- You are my client and 3 years ago I told you to shove all debt (including mortgage and title to primary residence) into Spouse A's name, so that Spouse B will never have DTI issues when buying rental properties in their name alone (and you are in California, so I already told you the deal with FHA in a community property state).
- In your culture it is normal for younger people to live at home rent free with parents until married, so you've been living with your parents who own their house in San Jose, and in the meantime you've been buying rental properties in Oakland.
- You purchased a primary residence in LA a couple years ago, but last month you moved in with your fiance (who does not charge you rent) in San Diego, and converted that old property to a rental.
- Any of the above, plus you are (or may want to in the future) buying or refinancing either a rental property, or a multi-unit owner occupied property, and wish/need for that rental income to "count" to make DTI work.
Here's the guideline, effective date December 7, 2019:
I guarantee you that different lenders are going to interpret "what about if..." questions/scenarios differently. Something that will probably work, with some lenders, that I've been suggesting to people: Starting December 1st, sign a lease with your mom/fiance/spouse/whatever and start paying $100/mo rent. Keep it simple, every single month write a check (note I didn't say venmo, I also didn't say a $100 bill, or paypal) for exactly $100, put "December rent 123 Main St" on the memo line, and have your mom/fiance/spouse/whatever cash that rent check. Boom, now you have a housing expense that you can document allowing the underwriter to check their boxes, "count" the rental income, and thus approve your loan. I don't see anything in that guideline requiring a certain minimum housing expense, so there you are.
As I said earlier, different lenders are going to interpret "what about if..." differently, but I believe at this point that there will be some FNMA A-paper 30YF lenders that agree with my interpretation. There will likely be some lenders with underwriters that do not agree, that will politely say to "stop being a smart a--," and my solution to that is simply not to broker loans to those lenders who have that interpretation. Some lenders will probably be good to go after you've paid rent for 2 months, some will want 12 months, so this will be a thing that is to be navigated with care to ensure no one loses any earnest money deposits.
Here's a "what if" question: "What if I go into contract on December 1st, but it closes after that deadline?" - this is going to be another question where the answer depends on how conservative or liberal the lender and their underwriters feel like being. It's going to be "yes" with some lenders, and "no" with others. Tread carefully.
