Difficult time finding a lender to do cash out refi on primary

11 Replies

Hi everyone!! Recently I've been trying to do a cash out refi on my primary home in Virginia. The problem I'm running into is the fact that I purchased several short term rentals earlier this year and have been told by multiple lenders that since I haven't owned them for over two years and would need to see the income from them on tax returns they would not be able to proceed. Has anyone else run into the same problem? Is this just standard and I should just wait out the 2 years?? 

In general, FNMA requires 2 years of self employment (landlording is self employment) showing up on tax returns to "consider" that income as "effective" income.

The only exception to that is vanilla traditional rentals where you can show a 12 month lease.

Note that nothing says the lease must not allow for subletting. If continued acquisition of real estate in vanilla Fannie type loans is a priority, re-read that last sentence and activate your creative brain juices...

I had that same problem last year, but found Birchwood loans outa Tampa. They loaned me up to 60% and didnt need any verification or documentation.

@Jeffrey Bradshaw You're going to run into that issue with all Conventional lenders. Fannie Mae requires lenders to document your rental income with your last year tax return, or in cases where it makes more sense to do so (underwriter discretion) they'll use 75% of the gross rental income you receive per your lease agreement. You obviously don't have a long-term lease agreement if you're doing short term rentals, so you'll have to wait until the income is reported on your most recent tax return.

The alternative would be to obtain financing with a hard money/private lender, local community bank or credit union, or commercial lender.

@Jeffrey Bradshaw do you need to use the rental income to qualify? FNMA recently said that if you currently own a principal residence and have less than one year of history receiving rental income/documented property management experience to cash out refi your primary residence the rental income in an amount not exceeding the PITI of the subject property can be used to qualify. In any case, max cash out amount is 80% of the value of the subject property and your DTI cannot exceed 50%.. also please take this information with a grain of salt.

@Jeffrey Bradshaw our compliance department just sent it out a few days ago, so pretty recent. If you're having DTI issues, you have a couple options- lower the loan amount, shop around for an interest rate to make sure you're getting the lowest one (you might consider buying down points) and maybe double check the calculations of how your taxes are counted as income with a different lender. It never hurts to have a second opinion. We have underwriters that specialize in self employed income and there are sometimes certain deductions etc that can make or break it. I also don't know how close you are on your DTI