Pay for Rent schedule - What does this mean?

[Teekap Pate]

Hello, I'm looking at purchasing an investment property home and the lender indicated that they need to structure the loan with me renting out the property. Since I don’t own the home until after I close on it, I would need to pay for a rent schedule for appraiser to calculate the average rental being charged for the area in which I'm purchasing. This will help offset the townhomes new mortgage payment which will help me qualify for the loan.

I'm not sure what this means and if this is common for a lender to do for an investment property.

Has anyone experienced this? What are the pros/cons?

Appreciate any insight.IL

[Zack Karp]

@Teekap Pate yes this is common, and necessary in order to use rental income for qualifying. A rent schedule is a supplement to an appraisal, and usually costs $100-$150 in addition to the standard appraisal fee.

[Matthew Kwan]

The only reason that you are requested to order a comparable rent schedule appraisal is because the lender needs to see what the market rent is for that specific investment property. The good thing about it is that it's quick and convenient for both yourself and the lender, the disadvantage could be that it might impact/increase your DTI if the appraisal came back lower than your actual current rent being received. There are also ways around it to use your lease agreement if you are aware that you're getting above market rent. Typically lenders would request 2 months of rental receipt + bank statement showing the tenant paying the 2 months of rent to the landlord OR 1 months of rent + security deposit if the lease just started. However, this would not work if it was received in CASH, as many lenders tends to question the legitimacy when it's being paid in cash.

@Albert Bui @Carlos Valencia

[Teekap Pate]

Thank you Zack and Matthew! Very helpful!

[Derrick E.]

Yes. I had to do this last year. It’s just another appraisal to make sure you aren’t “cooking the books”. 

Imagine someone claiming to receive $2,000/month in rent, maybe even have a lease and deposits from a family member to make it look legit, but then the market rent is only $500/month. 

It’s just a way for the lender to make sure the rental income is legit.