Weird refi issue - has anyone seen this?

Question

My wife is in the middle of refinancing a property under her name, and we just hit a snag. The underwriters kicked it back saying she could only claim half of the rental income of the property because we filed taxes as married filing jointly last year. However, because the property is solely in her name, she is responsible for full debt of mortgage. It has thrown off her DTI ratio. Is this a thing, or is the underwriter making a mistake? Do I need to crack some skulls?

They are saying I will need to co-sign, however, I was planning on signing on a new HELOC under my name on another property in the next day or two. Signing could delay the refi if I have to co-sign, but co-signing would also effect the Heloc closing.

Eric Veronica · Answer

@Stuart Goodman From the info that you provided it sounds like the underwriter may be making a mistake. If you can clearly prove that the property is owned by your wife then your method of filing taxes should not impact the income calculation. Based on that logic every small business owner would only be able to use half of their income to qualify. Only possible reason this might be legitimate is if your state has some sort of community property law or some implicit ownership of a non-borrowing spouse.

Bryce Cutler · Answer

@Stuart Goodman, I would find another bank/banker. Not every bank underwrites it that way. Full disclosure, I’m a banker by day and real estate investor by night.

Dan Gamache · Answer

@Stuart Goodman Private Lender will not factor DTI, will be based on cash flow of property. Rate & Points will be higher than conventional financing. Not sure what the purpose of the Refi is, Cash out? Also, would require property be transferred into LLC at or prior to closing.

Jason Leavitt · Answer

Can they cite the specific section of the Fannie Mae guidelines they are referring to? For example, ”Section B3-3.2.2, Documentation Requirements for a Business” in the selling guide includes the following:“Borrower’s Proportionate Share of Income or LossThe borrower’s proportionate share of income or loss is based on the borrower’s partnership percentage of Ending Capital in the business as shown on IRS Form 1065, Schedule K-1.The lender can only consider the borrower’s proportionate share of the business income or loss after making the adjustments to the business cash flow analysis discussed below...” Perhaps they are referring to this or another similar clause in another section that would pertain to your situation with an individual applicant and jointly file taxes? I do not see anything specifically addressing your particular situation (or in the rental income worksheets either) but then it is a 1354 page document and I didn’t read it all...

Stuart Goodman · Answer

Thank you everyone for the input. It has been an interesting situation for sure. The communication back after many calls is that it’s a legit thing enforced by Fannie and friends. Saying the issue was how the schedule E was filled out. I am still not sure, so I am pushing the broker and underwriter on it.I am wondering if I haven’t been explaining the situation the best, so just for a recap...wife has an FHA loan in her name for an owner occupied Duplex. We are refinancing into a conventional loan to get rid of the MIP. Communication from Broker/underwriter is that they can’t use as much of the rent for income as they did when she applied for the FHA loan, in part because we both had our names in the schedule E.As such, her DTI is now too high. Very odd, will let everyone know how it plays out.

Stuart Goodman · Answer

For this refi, my wife used a broker. I have him re-looking at the numbers now, because what was being communicated was not syncing up regarding her DTI.We are refinancing from an FHA to conventional currently. In a month we will be getting a Heloc on the property as well. Fingers crossed this loan happens, it’s a killer rate and will save us a bunch, getting ride of the PIM.

Stuart Goodman · Answer

Thanks for the reply. I am not, my wife owns this Duplex outright. They said that because we filed our taxes jointly, that she is only able to claim 50% of the rents as income towards her refinance. The Heloc I have is on a different property, and is only under my name.

Harjeet Bhatti · Answer

@Stuart Goodman Are you on title on this property? If yes you have ownership of 50% in this property. If you are not on title you can provide mortgage note to Underwriter showing she has 100% ownership.