Income from property considered when applying for loan as primary residence

Panama City, Florida
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Income from property considered when applying for loan as primary residence

Summer Shelton
Rental Property Investor · Panama City Beach · Member since 2023 · 20 posts · 5 votes

When purchasing a small multi family property as a primary residence. Does the bank take into consideration the income from the other units? Wanting to use a FHA loan but will likely do a in house loan with a bank.

Looking to purchase a duplex, triplex or fourplex in Panama City and do short term rentals for summer months and long term through the winter. 

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Greg ScottPro Member
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
1y

Yes. Typically 75% of rental income can be applied towards your DTI for qualification. Most banks don't really know how to do that because they cater to SFH owner-occupants. If you find someone giving you confused looks, seek a mortgage broker that helps investors.

I'm not so sure how they would calculate income from short-term rentals. I have no experience there. On long-term rentals the bank likes to see signed leases which clearly you can't have with STR. Ask your lender how they handle it.

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  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    1y

    Yes. Typically 75% of rental income can be applied towards your DTI for qualification. Most banks don't really know how to do that because they cater to SFH owner-occupants. If you find someone giving you confused looks, seek a mortgage broker that helps investors.

    I'm not so sure how they would calculate income from short-term rentals. I have no experience there. On long-term rentals the bank likes to see signed leases which clearly you can't have with STR. Ask your lender how they handle it.

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  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    1y

    @Summer Shelton yes, FHA loans do allow this but make sure you speak with your lender about some of the trip ups from these loans. Mainly the "self sufficiency test". And as mentioned above, if the lender you are speaking with doesn't know what that is...then you need to go to a different lender. Seriously, it's important.

    And as mentioned above, the amount of rent you receive on multi-family properties is based on 12 month rental comps. FHA will not use any short term rental data.

    Something else to think about - any reason why you wouldn't use a Fannie Mae loan here?

    Hope all of that makes sense but post more if you would like.  Thanks!

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  • Summer Shelton
    OP
    Rental Property Investor · Panama City Beach · Member since 2023 · 20 posts · 5 votes
    1y
    Quote from @Andrew Postell:

    @Summer Shelton yes, FHA loans do allow this but make sure you speak with your lender about some of the trip ups from these loans. Mainly the "self sufficiency test". And as mentioned above, if the lender you are speaking with doesn't know what that is...then you need to go to a different lender. Seriously, it's important.

    And as mentioned above, the amount of rent you receive on multi-family properties is based on 12 month rental comps. FHA will not use any short term rental data.

    Something else to think about - any reason why you wouldn't use a Fannie Mae loan here?

    Hope all of that makes sense but post more if you would like.  Thanks!


     Thank you for the feedback! That all makes sense. I think we will likely go with the Fannie Mae loan for purchasing. That actually better aligns with our needs. 

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  • Derek BrickleyBusiness Member
    Lender · Ann Arbor, MI · Member since 2021 · 680 posts · 230 votes
    1y

    Yep! Second what's been said. Unless there is a history of STRs in the property already and you have experience with STR, you really wouldn't be able to supplement your income with that. The long term rent can most definitely be considered though for FHA. That self-sufficiency test is sometimes the killer on 3-4 units, but the conventional 5% down option has benefits too and that's how I got into my first multi-unit househack.

    Now most of the time we don't see househackers/investors use in-house or portfolio loans from banks because sometimes they have more restrictive guidelines and higher fees for holding it which might cause the numbers not to work or for the deal not to go through entirely.  What caused you to (likely) lean that route over all those other options out there?

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  • Raymond J. RodriguesBusiness Member
    Lender · Miami, FL · Member since 2017 · 1k+ posts · 797 votes
    1y

    @Summer Shelton, FHA allows you to use rental income and so does Fannie Mae/Conventional loans. Fannie Mae has a requirement that if you want to use the rental income from the non occupied units, that you MUST have a current housing expense which means you cannot live rent free. I recommend comparing lenders to make sure you get some good terms and financing options for your next investment!

    [email protected]619-456-8311
    Helm Mortgage Corp.5127 Reviews
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  • Raymond J. RodriguesBusiness Member
    Lender · Miami, FL · Member since 2017 · 1k+ posts · 797 votes
    1y

    Hello 

    [email protected]619-456-8311
    Helm Mortgage Corp.5127 Reviews
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  • Jonathan Soto
    Lender · Newark, NJ · Member since 2016 · 695 posts · 252 votes
    1y

    Welcome!!! best of luck on your journey.

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