Cash out refinance stipulations

[Ty Goulding]

Me and my wife have been in the process of refinancing two duplexes and have come across a unique problem.  I’m curious if anyone has had this issue before and hopefully gotten around it. 

We have been denied for cash out loans on these two properties twice now. The loan makes it to underwriting and they shoot us down. Apparently in Fannie mae’s guidelines if you don’t own a primary residence or show a housing expense you cannot apply your rental income towards qualifying for the loan. Which makes our debt to income un-lendable. 

We are living in a property that is owned free and clear by my mother’s family. We have a right of first refusal to buy it. However we can’t purchase it currently because my aunt has legal right to it as long as she is living. She is in an assisted living center and utilizing Medicare. Therefore my mother’s family can’t collect rent from the property or sell it or else Medicare would take the property. 

Because of all this we can’t show a housing expense and don’t qualify to refinance. We tried re applying showing housing expense because we pay utilities and upkeep, which is housing expense but apparently doesn’t qualify. Would be really curious if anyone has any insights. 

We were hoping to take the refinances for down payments on multiple short term rentals with partners.