TIP OF THE DAY- FHLMC RENTAL INCOME UPDATES

TIP OF THE DAY- FHLMC RENTAL INCOME CHANGES EFFECTIVE 3/1/19

 

The following charts contain requirements and guidance for documentation, history and analysis.

Subject

Subject property purchase transaction

Subject property refinance transaction or non-subject investment property

·         Property purchased in the current calendar year, or

·         Property placed in service for use as a rental property in the current calendar year

Documentation and analysis

Streamlined Accept and Standard Documentation Levels

·         A lease, if available, must be used to determine the net rental income. The Seller must make reasonable efforts to determine lease availability, including review of the appraisal, comparable rent data, purchase contract, a discussion with the Borrower and/or any other applicable and reasonable method.

or

·         If a lease is not available, Forms 72 or 1000, as applicable, may be used to determine the net rental income

·         Lease must be used to determine the net rental income

·         Purchase date or conversion date, as applicable, must be documented

Lease requirements

Leases must be current and fully executed, with a minimum original term of one year. If the lease is documented as assigned from the property seller to the Borrower and is in the automatically renewable month-to-month phase of an original one-year (or longer) term lease, then a month-to-month term is acceptable.

Maximum eligible amount of net rental income

·         The Borrower must currently own a Primary Residence to use rental income to qualify when purchasing a new rental property in the current calendar year. In such instances, rental income can only offset the principal, interest, taxes and insurance (PITI) of the new rental property.

·         If the Borrower's current Primary Residence is being converted to a rental property, rental income can only offset the PITI of that Primary Residence.

·         If the rental income exceeds the PITI of the new rental property or the converted Primary Residence, as applicable, the excess rental income cannot be added to the Borrower's gross monthly income to qualify unless the file documentation demonstrates the Borrower has a minimum of one-year investment property management experience.

Documentation

Streamlined Accept and Standard Documentation Levels

If the Borrower qualifies with the full monthly payment amount (as described in Section 5401.2) for the subject Investment Property and/or non-subject investment property are included in the Borrower's monthly debt payment-to-income ratio, no further evaluation or calculation of rental income from the subject Investment Property and/or non-subject investment property is required.

If rental income from the subject Investment Property and/or non-subject investment property is to be considered in qualifying the Borrower, the following requirements apply:

·         The Seller must obtain the Borrower's federal income tax returns (Internal Revenue Service (IRS) Form 1040) including the Schedule E for the most recent year. If the income from the subject property is reported on the Borrower's federal income tax returns, the Seller must use the Schedule E to determine the net rental income.

·         If the subject property has been owned for at least one year and is reported on the Schedule E of the Borrower's prior year federal income tax return, use the income or loss as reported

·         A signed lease may be used if the property was out of service for any time period in the prior year and the Schedule E supports this by a reduced number of days in use and reflects repair costs. Form 72 or 1000 must support the income reflected on the lease.

·         If the number of days the property was in service is reduced on the Schedule E and the file does not contain a documented event such as a renovation or repair or evidence the property was purchased later in the calendar year, the rental income or loss from the Schedule E must be used and annualized for qualifying purposes

 

 

justin brown