To Airbnb Or Not To Airbnb...
...is anybody even asking the question? Shall we then conjure The Bard to determine not whether renting out some or all of your home(s) through Airbnb or VRBO is a good idea itself, but once done is done, to know how thee mortgage lenders may view thine income? Whilst the "collaborative consumption" economy may be in full, progressive and dynamic bloom, a rose by any other name, like the mortgage industry for example, can be quite slow to see the light. True, our dagger may well be perceived dull held alongside the cutting edge of the Uber-net.
So to venture forth in our quest to interpret and understand this new rental income wrinkle, we shall see that thus far, nothing is either good or bad, but that our thinking makes it so...
"I Like This Place and Willingly Could Waste My Time in It"
Shall we compare three in another way? Let's first acknowledge that residential mortgage lending has
but these occupancy statuses:
- Primary home. Wherefore thou art. Your utility bills and tax returns (usually) forward to this address. This property is close to (or is) your place of work. Rental agreements are uncommon unless we have a legal multi-unit dwelling or an accessory unit.
- Second or "vacation" home. A "reasonable" distance from your primary home. Available for your year-round occupancy. No rental agreements permitted (though the IRS would differ on this point).
- Investment or "rental" property. Income generating property and/or anything other than your primary or vacation home.
"The Common Curse of Mankind - Folly and Ignorance"
A lender will most often determine a borrower uses Airbnb and VRBO in two ways; deposits on bank statements and personal tax returns. Even if seemingly insignificant, in my mind's eye I can envision several scenarios where this may let slip the dogs of war:
-
Attempting to qualify with rental income from a primary home. If you rent part of your primary home, no matter how spacious and/or otherwise unused, and your primary home is legally classified as a single family residence (SFR), you will find that most rental income is not considered in your
qualification. Remember, you cannot cross two occupancy types, so if you live in a home, it is, by definition, not an income generating property. Unfortunately this holds true even when you have a "1+" or "in-law" unit. One is one. - Second home refinances. Be warned that if refinancing or purchasing a second home and tax returns and bank statements show all sorts of rental agreements, this could prompt a healthy degree of skepticism on the lender's part.
- In lieu of lease agreements. The lending world loves stability. If you do not have enforceable leases on any rental properties, but favor online arrangements to derive income, be prepared to provide a two-year history of income history for the property. Even here, without a "forward" lease in place, it may be difficult convincing an underwriter to qualify rental income. Sort of our version of "past performance is no guarantee of future results."
- Condotels. If you own a condominium in a resort area, be sensitive to the fact that the entire complex does not give the appearance of a "condotel." The government sponsored entity, Fannie Mae, has specific guidelines on condotels and their allowability for financing. If all owners are Airbnb'ing their condos, bnb'eware...
"Brevity is the Soul of Wit"
These new online rental services join the ranks of a changing economy where the tech-savvy end-user
will eschew a taxi in favor of Uber, or procure content from a source that produces none of the same (Facebook). And generally, if you use Airbnb as most will likely use it, you should expect no issues with your mortgage application on either a purchase or refinance. Where the use gets heavier, more involved and more relied upon, however, realize that it may rub up against traditional lending guidelines that have not yet made specific allowances and exceptions. Until our industry adjusts, know that I am a resource on this matter should you have any questions.
"Have more than thou showest, speak less than thou knowest, lend less than thou owest,"
Rob Spinosa
Executive Loan Advisor
NMLS: 22343 CalBRE: 01297944
Cell: 415-367-5959 Fax: 415-366-1590
rspinosa@rpm-mtg.com www.rpm-mtg.com/rspinosa
1058 Redwood Highway, Frontage Road, Mill Valley, CA 94941
RPM Mortgage, Inc. – NMLS#9472 – Licensed by the Department of Business Oversight under the Residential Mortgage Lending Act. Equal Housing Opportunity.
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