Profile picture for cfraz9

How much rental history does a lender need if I am renting out my house and looking to purchase?

I have tenants that are 8 months into a two-year lease. I'm trying to purchase another home and while I understand that most lenders need a two-year history of managing a rental, are there exceptions and if so what are they?
  • February 26 2012 - Ashburn
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Answers (9)

Profile picture for april canty2012
anyone in the california region and has the information changed since 2012. I have the same issue as the above person. I need a homestyle renovation loan due to the home not having a certificate of occupancy. I have rented my home since july of 2013 and have a lease agreement with payment history. thanks
  • December 08 2014
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As long as you can provide a lease agreement and prove that tenants have been current in their payment. That should be sufficient for most lenders.
  • February 28 2012
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cfraz9,

Yes, 25% of the amount of rental income as shown on the lease agreement is carved out to account for "vacancy and maintenance". 75% of the rental income amount will be used in a calculation known as a "rent roll". Your total payment for the rental property loan which includes principal, interest and mortgage insurance plus monthly costs for property taxes and homeowners insurance will be subtracted from 75% of the monthly rental amount.

The positive monthly income would be added or the negative monthly income would be subtracted from your other income before dividing all other monthly debt payments as a percentage of your gross monthly income.
  • February 27 2012
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Profile picture for cfraz9
Thank you very much for the replies. This is quite helpful.

Dan, thank you for the clear explanation. The purchase is for a new residence. We would look to sell the rental property in a few years.

If I understand you correctly, my lender could use my signed two-year lease agreement and 75% of the income from the rental property as income towards my ratios, correct?

Chris
  • February 27 2012
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Are you buying another rental property or a residence for yourself?

If you buy rental property,

you are limited to four financed properties under Freddie Mac guidelines. If you want to buy up to 10 properties (including your residence or second home), you need Fannie Mae guidelines and you will need a 2 year history of managing rental properties, a higher credit score, and 6 months reserves equal to PITI payments for each property.

However, if you are buying a residence,

you don't need 2 years rental history. If you have a written lease agreement for the past 12 months and it is good for the next 12 months, then the loan payment you pay on that home's loan will be offset by a factor of 75% of the rent less the PITI payment. You don't need to use the tax returns to qualify if you don't have a 2 year history.

I don't understand Rosemarie's statement about having to show income on your W2; that is income reported by your employer. Maybe she means your 1040 and schedule of real estate income and expenses (schedule-E), as Jeff, Cheryl and Eric explained.

Seek a lender by interviewing several and choose who you .like; ask for referrals from people you trust too!
  • February 26 2012
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I work with a Lender a the norm is 2 years, plus it must show on your W2 as 
income property... giving you positive to your income..  Plus they look at the debt to ratio and other things on you.. It is always best to talk to a Lender and if
you like I can have my Lender call you her name is Cindy Bissell she is awesome.. You can also look her up on the web. too..
If you are looking to buy I will be more than happy to help you please give me
a call [contact information deleted by Zillow moderator.  Please see our Good Neighbor Policy]    Have a great day..
  • February 26 2012
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Cfraz9 - If you don't have previous landlord experience (reporting income on schedule E on your 1040's), then we'll require that you have at least one filed tax return with rental income being reported for the subject rental property (to use this income). Some lenders require 2 yrs, others just one year..Since you're probably getting ready to file '11 tax returns (if you haven't aleady done so), most likely you'll have this income available soon....

Do you even need this income? What's your debt to income ratio without this income?

I'm a local lender, feel free to contact me if you'd like me to further explore your scenario!

best, Jeff Marr
Alpine Mortgage Planning
  • February 26 2012
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The exception can be on how it is reported on your 1040. Two yrs is the norm, however, to be precise, contact any local lender in your area.  They are the professional you should be contacting.
  • February 26 2012
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Profile picture for E4Realty
Typically it is a two year history, but my understanding is there are some exceptions based on equity in property and how income is reported on Schedule E of your 1040. Happy to get you in touch with a well qualified lender for more detailed information on this subject.
  • February 26 2012
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