The changes are primarily aimed at determining the stability of that income, especially when it is short term and does not involve a lease. The changes apply to loans with settlement dates on or after February 9, 2018.
Commercial loans used to purchase or refinance the subject property, or a non-subject property, which was not owned in the prior calendar year requires considering net rental income only up to a limit of 30 percent of the total of that net rental income plus all other stable monthly income used to qualify the borrower.
The exception would be a borrower who has a documented history of investment property management experience of at least one year.
The change is to provide support to sustainable and successful homeownership by requiring a reasonable limitation upon the reliance on a newer type of income stream.
To use rental income in refinancing a 1- to 4-unit investment property, a 2-to 4-unit primary residence, or a non-subject investment property, the following conditions must be met.
Short term rental income from a source where a lease is not utilized must have a two-year history documented on IRS Schedule E and the property must have been used for the purposes of producing rental income for that period of time.
Long term rental income can be verified through either a current signed and executed lease with an original term of one year or through income reported on Schedule E.
Sellers may also determine that rental income is stable without a lease when it is evident the income is not short-term, based on the documentation provided.
Changes to rental income requirements reflect changes in the rental market such as short-term rental income and are intended to support the determination of stability, calculation of rental income, and a reasonable expectation that rental income will continue.
The Freddie Mac Bulletin (#2017-12) also includes technical changes to rental income calculations, clarifications of some self-employed income revisions made last year.
This article was prepared by Winston Rowe & Associates.
They are publishers of Free eBooks and provide financing for a wide variety of commercial real estate
You can contact them at 248-246-2243 or visit them online at http://www.winstonrowe.com
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