February 18th, 2011 1:29 PM by BILL WILBANKS
As if it hasn't been tuff enough in the last couple years for move up buyers, a recent guideline change relating to using new rental/lease income on a departure residence now applies:
Rental Income Qualification Requirements When a Departure Residence Becomes an Investment Property
Impacted: Conventional Conforming and Non-conforming, including the High Balance Conforming Loan Program and the Super Conforming Mortgage Program.
Not impacted: Freddie Mac-owned Streamlined Refinance, Fannie Mae DU Refi PlusTM, Freddie Mac Relief Refinance MortgageSM, Government and USDA Rural Development.
To meet agency requirements, property management experience is now required when qualifying with rental income from a Departure Residence that becomes an Investment Property:
Previous Credit Policy
Current Credit Policy
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) standard post-closing/reserve requirements for both properties OR reserve requirements as indicated by Automated Underwriting System (AUS), whichever is greater.
· For Non-conforming 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 other 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 previous policy continues 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 to qualify.