Can a lender asking for documents requested by investor

Question

Hello BP community,

I’m in the process of securing financing for a home with an online based lender who, one day before proposed close date, has come back and requested twelve months of cancelled rent checks for rent paid to live in my own home. I found this highly unusual and upon asking, the lender said that their investors are asking for this or twelve months of bank statements showing I paid the rent or else the deal won’t close. Nothing unusual about my financial history and I’ve had no problems buying multiple properties the last year. I’m surprised that the investor is now directly dictating new requirements for lender approval, some of which seem ridiculous. Has anyone else encountered this? Is this related to covid?

Shaun Weekes · Answer

Starting April 1st Fannie changed their guidelines on landlord experience.  You are now required to have 1 year of landlord experience or property management experience.  I guess asking for 12 months of cancelled checks would prove this but so would a CPA letter stating that you've rented the property out for at least 12 months or your last Sch E showing 365 Fair rental days.  There are so many ways to prove this, but I would personally only ask for this information if it was the last resort.

I hope this helps and have a good one.

Eric Hegwer · Answer

Yep,  I've had this happen this week to a client of mine.  Last minute COVID request.  Just show the paperwork and move on.

Matt Devincenzo · Answer

I've been asked for this before...it was probably 8 years ago now. The loan ended up needing to be a portfolio loan instead of a conventional I was originally quoted due to some property issues. The bank honored everything but since they had to keep the loan wanted the additional back up for whatever reason. I sent the cancelled checks on and they closed without an issue.

So this isn't necessarily an unusual request even outside the Covid arena, but now when lenders could get stuck with loans they can't sell to Fannie/Freddie makes a lot more sense.

Aaron K. · Answer

Could be related to covid, they have increased lending standards and they are probably bundling your loan with a bunch of others that were originated after they tightened up standards and the investor wants all the data for all the loans in the bundle.

Shaun Weekes · Answer

They are not shut out, but they cannot use the rental income to qualify if they do not have a mortgage.  
Example: This example is only for someone who does not own a property.  If you own a primary but you are a first-time investment buyer, you can qualify using rents.

Mr. Edwards makes 5K per month or 60K per year.  He rents which is 2k per month and no other debt.  His DTI is now at 40% which is exceptionally low.  Let us say he wants to buy a property that rents for 1.5K and has a monthly payment on that new home of 1k.

In the past he could use 75% of that 1.5K to help qualify which would be $1,125.00 added to his 5K monthly.  $3k/6.125K = 48.9% which is acceptable with the correct C.I.A. (Credit, Income and Assets)

Now he won't qualify (Under Fannie Mae Guidelines) because his DTI will 60% and he will have to find a portfolio or private lender.

There ARE some exceptions to this rule and the direct link is attached.

I want to be clear that this is for rental income use.  If Mr. Edwards makes 20K per month then he would qualify because he doesn't need the rental income to qualify.

https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B3-Underwriting-Borrowers/Chapter-B3-3-Income-Assessment/Section-B3-3-1-Employment-and-Other-Sources-of-Income/1736864771/B3-3-1-08-Rental-Income-02-05-2020.htm

Jay Hinrichs · Answer

OK then first time rental property owners are shut out then.. ???

Daniel Z Fang · Answer

Thank you all for the helpful input. Good to know this isn’t out of the ordinary. I have no problem providing this info but was surprised at this type of ask coming one day before close to satisfy an investor. I closed with another lender only three months ago and it’s very apparent that lending needs have changed acutely. Time to get them what they need so we can all move on.

Can a lender asking for documents requested by investor

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