Conforming Loan Changes for Rental Property Owners
I received a great piece of informtion from Crhis Niere from Town & Country Mortgage Group, LLC sent me this important update to conforming loans on owner occupied rental property.
I am seeing this situation more often, where some wants to turn their current owner occupied into investment property and purchase a new owner occupied home. To summarize, if they do not have a history as a property manager, they WILL NOT be able to use the rental income for qualifying, even if they meet requirements of previous credit policy for equity and reserves.
If at least 30% equity in the current Primary Residence can be documented, 75% of the rental income may be used to qualify if each of the following requirements are met:
Rental income is documented with a fully executed lease agreement
For conforming loans: Two months Principal, Interest, Taxes and Insurance (PITI) for both properties OR the standard post-closing liquidity/reserve requirements, whichever is greater
For nonconforming loans: Six months PITI for both properties or 10% post-closing liquidity, whichever is greater
Proof is provided that a security deposit was received from the tenant and deposited into the borrower’s account
The borrower’s tax return must reflect a two-year history of managing Investment Properties, as evidenced by two years filed and signed IRS 1040 tax returns when rental income is documented with a fully executed lease agreement
All other Credit Policy prior to Feb. 12 continue to apply
NOTE: If the borrower’s tax return does NOT reflect a two-year history of managing Investment Properties, rental income may not be used qualify.
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