When Can Rental Income Be Used? ...... #2

As I pointed out Tuesday on my first blog on this topic When Can Rental Income Be Used? ...... #1, with many houses here in Connecticut still below the value they were purchased for, or have very little equity because of declining property values.  Many potential Sellers are continuing to choose not to sell their homes until market conditions improve.  These Sellers are choosing in stead to rent out their present home in order to purchase another.  However, taking this route is not as simple as it sounds, so Homeowners who are considering doing this need to be aware of the financing guidelines before they embark down that path, and talk to a trusted Lender about When Can Rental Income Be Used?

The reason why a Homeowner who is planning to rent out his/her present residence needs to be aware of the financing guidelines, before they purchase another property to live in.  Is because they may not be able to use the rental income from their existing property to qualify for the purchase of the new property unless they meet Lending Guidelines. Both Conventional and FHA Guidelines allow for a Homeowner to rent out their property and use the rental income to qualify to purchase another property, but there are stipulations.  These stipulations or guidelines for using rental income to qualify for the purchase of another property differ between Fannie Mae (Conventional Loans) and FHA Loans.

Tuesday I covered the Fannie Mae guidelines for how and When Can Rental Income Be Used  to qualify for the purchase of a new Primary Residence.  Today I will cover the FHA guidelines for When Can Rental Income Be Used to qualify for the purchase of a new Primary Residence.

The FHA guidelines on the use of rental income from a departing property is not the same, or as wordy as the Fannie Mae guidelines, but they are just as restrictive.  FHA guidelines basically say a Homeowner CANNOT use rental income to qualify for the purchase of a new Primary Residence, except under two conditions:

• The first exception is if the Homeowner is relocating due to a new employer and/or being transferred to a different location by the present employer to a location which is not within reasonable commuting distance of the existing property.  In either case the Homeowner must produce an executed lease agreement for at least one year, and provide evidence of a security deposit and/or first months rent being paid.
• The second exception is if the Homeowner has sufficient equity in their present property.  Sufficient equity can be achieved in one of two ways:
• The Homeowner can demonstrate they have 25% or more equity in the property through an appraisal that is no more than 6 months old.
• Or by comparing the unpaid principal balance of their current mortgage on the existing property, to the original sales price of the property when it was purchased or last refinanced, through Closing documents like a HUD-1

As I stated Tuesday everyone has the right to rent out their property to a renter of their choice.  However, if they need to use the rental income to be able to purchase another property, they need to talk to a trusted Lender about the Lending Guidelines before make a decision. 

I hope I was able to provide this information on Fannie Mae and FHA on When Can Rental Income Be Used, in an easy to understand way.  Hopefully this information will be useful for Homeowners who are considering renting out their present home in order to purchase another.  As well as useful to Real Estate Professionals who may not be aware of these Guidelines.

 

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com