2 years landlord experience - what counts?

[Chris Parker]

I have never bought a house before. I understand that you must have 2 years of landlord experience to count rental income towards qualifying for a mortgage. 

To qualify for a conforming mortgage on the types of houses I want (residential MFH) I will need to include rental income. The last 2 years I've been living in an apartment and collecting my roommate's rent and paying it to the apartment complex on their behalf. Does this satisfy the requirement to allow me to include future rental income towards qualifying?

If it does not, what is my best play here? Buy a cheap house out of state (say, in my home town) and wait 2 years?

I have a high W2 income, great-nearly-excellent credit, and live in the Bay Area. Pending looking at all the numbers, I think I would like to pay 5% down. I pay $300/mo on low interest student loans ($63k outstanding) which are paid in advance 2 years. (If I've done my math right, I qualify for more house if I simply prepay more on the mortgage than pay off the loans early. Paying off individual accounts within the loan doesn't seem to decrease the monthly payment.) I have no other debt except some credit cards I pay off every month. 

[Jared Bouzek]

Chris Parker You don’t need 2 years of landlord experience to count rental income. This is a common fallacy passed around. I would recommend you connect with a solid loan officer who knows what they’re doing and can guide you toward home ownership. Chris Mason is in California if you want to talk to somebody who knows their business.

[Chris Parker]

Thanks Jared! 

I just found an educational video from Freddie Mac about the qualifying income requirements for a Home Possible loan. It not only agrees with you but makes a stronger statement: potential rental income must be included in my income! This should bring me to an agreeable DTI ratio.

It looks like I qualify for 5% down payment on a residential MFH, as long as I buy in an area that has no max income requirement. It seems like this is most of the Bay Area. 

I can't buy just now, but I will definitely remember your recommendation when the time comes. 

Thanks again!

[Rob D.]

Remember that the bank will accept rental Income they will only use a percentage of your rental income as actual income. So say when it’s all said and done you show clearing $300 a month they won’t count the whole 300. They may count 70/75% of that.  The 2 years of being a LL isn’t about your years as a LL experience it’s about showing a steady income from your rentals. That’s what banks are looking for. 

[Niki C.]

Thats the reason why i include my rental income in my tax this year because that how i show i have rental income.

[Chris Mason]

Originally posted by @Chris Parker:

Thanks Jared! 

I just found an educational video from Freddie Mac about the qualifying income requirements for a Home Possible loan. It not only agrees with you but makes a stronger statement: potential rental income must be included in my income! This should bring me to an agreeable DTI ratio.

It looks like I qualify for 5% down payment on a residential MFH, as long as I buy in an area that has no max income requirement. It seems like this is most of the Bay Area. 

I can't buy just now, but I will definitely remember your recommendation when the time comes. 

Thanks again!

Home Possible for 2-4 unit at 95% LTV is a great program... that 99.99% of agents (and most LOs) have never heard of. It's very important that your lender and agent convey in crystal clear terms that it's not FHA with the offer, since most of the time the HP offer gets accepted specifically because the listing agent is sketched out by FHA. My HP preapproval letter is typically 3 pages long - standard letter followed by 2 pages of information. I leave it up to the buyer's agent which of those 3 pages to include depending on their evaluation of the listing agent.