Lender asking borrowers to commit to leases.

[Carmelo Caceres]

Hey guys, I have something to vent out and read some opinions. We own a duplex through a VA loan for two years and we started to process to refinance and get another Va loan for another investment property as a primary residence and turning the first one as a rental. We submitted applications to three different banks, two are on the approval process and one turned us down because they wanted us to commit to rental leases in order to get a pre-approval in which we completely disagreed and said no. We have been doing short term rentals and doubling the monthly income compared with what we would be making monthly with a long term lease and everything is documented. With a moratorium in place for over a year and some tenants living for free putting landlords in danger for a foreclosure, how can a lender would possibly ask for such a nonsense? We decided to go with a short term rental over a year ago for a reason and for us was the best possible decision at the time. Would love to read some opinions. Thanks

[Jesse Rivera]

Originally posted by @Stephanie P.:

@Carmelo Caceres

Wow.  You're pretty combative in your posts.  No need to be so hostile when you're asking for advice or clarification.  You had your "rant" and should probably take a moment to listen to the information filled answers rather than dismissing the individual.  There's that whole thing most of us heard from our Mom's about God giving us two ears and one mouth for a reason.  @Russell Brazil read and comprehended your post and responded appropriately with good information and @Raymond J. Rodrigues  made great points.  Neither deserve your snark and no, he who has the knowledge (very limited apparently when it comes to lending) doesn't make the rules because he doesn't have any money.  Having said that...

VA, FHA, Fannie Mae, Freddie Mac don't recognize short term rentals because, as others have said, they're active commercial businesses. Drilling down on it, they don't produce income if you don't work them. The theory is that rental properties produce passive income and are not a commercial venture requiring commercial/portfolio type loans.

I'm going to answer your question with a tutorial.

Every loan has a purpose; whether the purpose is to satisfy the requirements of the first time homebuyer, a veteran, a Jumbo borrower, a regular conventional borrower, commercial borrower, a borrower that needs a portfolio loan or a non-qm type loan not to mention DSCR loans. They all satisfy a need. Some require add on's like mortgage insurance, FHA insurance or even the VA funding fee or lack thereof for service disabled veterans or points, but all of those nuances/purposes bring with them very specific guidelines. To emphasize the point, they all have their place and their own guidelines. As lenders, out job is to originate loans that can be sold. It's our number one rule; originate loans so you can get rid of them and make a profit. Period. If we originate loans that we can't get rid of, we'll be out of business when we run out of money which is pretty fast for most brokers/lenders. We have to follow guidelines so we can get rid of the loans we originate and then go get another.

You're not wrong that short term rentals are very profitable for many people that really work them and I think you made a great business decision to manage them last year. While many many small landlords are losing their own homes as tenants are living high on the hog not paying rent, your business is expanding. That solid business acumen doesn't mean that VA or FHA or Fannie Mae or Freddie Mac should recognize you as an authority on their guidelines and change. It doesn't work that way. To answer your original question "We submitted applications to three different banks, two are on the approval process and one turned us down because they wanted us to commit to rental leases in order to get a pre-approval in which we completely disagreed and said no. We have been doing short term rentals and doubling the monthly income compared with what we would be making monthly with a long term lease and everything is documented. With a moratorium in place for over a year and some tenants living for free putting landlords in danger for a foreclosure, how can a lender would possibly ask for such a nonsense?"  They shouldn't be asking you for a bogus lease.  If they are, they're asking for fraud.  They should be simply turning your loan down when you can't produce the long term leases that they require because your loan doesn't meet their criteria or the criteria of their wholesale lender.  No less.  No more.

Well said. Cheers.

Another rant in 3,2,1...