Allowance of short term rental income for conventional financing

[Albert Bui]

Later this year in 2018 Freddie mac has finally announced some guidelines to use when determining short term rental income.

The guidelines will require there to be two year  history via the tax returns which isnt too shocking but, what is is that there are no required lease agreements. Prior, when a borrower had a short term rental they would not be able to use the rental income if they could not provide a lease agreement (when financing the subject property). With this new guideline no lease will be asked and the income will instead be calculated using the net rental income that is filed on the tax returns for the past 2 years.

The one downside that is coming up is that Freddie Mac (conventional financing) is bringing back a 1 year landlord experience to use unlimited rental income. If a borrower does not have this 1 year history documented then only 30% of their total income used for qualification can be from rental income. So this only becomes a problem for people who do real estate mgmt and landlording as their sole occupation. 

The reality is that most people don't go from having no properties to an entire portfolio in 1 year anyway, and if so, they could always wait 1 year file a tax return, then qualify again next year up to 100% of their net rental income.

These guidelines dont go into effect till late 2018, on Nov 30 or after.