Rental property in schedule E counting against me w/ conventional loan, any options?

[Sam Doyle]

Hi all,

Have a weird situation where I recently purchased a rental property 1 year ago and am looking for a new loan on a new property. I have great credit and W2 income to purchase a property before even adding my rental income (~2k a month net). The rub is I invested ~100k in the first year in deferred maitenance + upgrades/remodels and the underwriters say that they cant use current cashflow & new leases and have to use the old 2022 Schedule E numbers which are low from vacancy, old leases & insane 1x deferred maintenance bill from purchase.

Do you know if I am simply SOL if I want to qualify for another conventional loan until I get my 2023 Schedule E next year? I'm actually cashflowing >2k a month on the property now but they are basically telling me its -4.5k / month given the now very outdated 2022 schedule E. Is this just a bad underwriter or is that underwriting policy everywhere?

[Jay Hurst]

Quote from @Sam Doyle:

Hi all,

Have a weird situation where I recently purchased a rental property 1 year ago and am looking for a new loan on a new property. I have great credit and W2 income to purchase a property before even adding my rental income (~2k a month net). The rub is I invested ~100k in the first year in deferred maitenance + upgrades/remodels and the underwriters say that they cant use current cashflow & new leases and have to use the old 2022 Schedule E numbers which are low from vacancy, old leases & insane 1x deferred maintenance bill from purchase.

Do you know if I am simply SOL if I want to qualify for another conventional loan until I get my 2023 Schedule E next year? I'm actually cashflowing >2k a month on the property now but they are basically telling me its -4.5k / month given the now very outdated 2022 schedule E. Is this just a bad underwriter or is that underwriting policy everywhere?

 @Sam Doyle  It sounds like you are applying for a conventional loan correct?  Assuming so, then yes, the underwriter has to use the last filed tax returns to generate income or loss on rental properties. (the underwriter does not make the rules but rather follows the requirements sent out by Fannie/Freddie for conventional loans)   They will use this worksheet:  Rental income worksheet    If you look at line A7 it allows for the add back of "one time expenses", So, if you can argue that some of your write offs from your tax return are one time expenses you would be able to add those expenses to your net rental income. It still might be a loss but maybe enough your debt to income can absorb.

But, if not, you can always go with a debt service coverage ratio loan on the new property that does NOT look at your tax returns at all.  This is assuming the new property is going to be non-owner occupied as well as they are only available on investment properties. They will have worse overall terms then a conventional loan but designed for folks in your position.