Should I refinance my Househack?

[Gustavo Mendoza]

Hi there fellow Househackers,

I've been getting contacted by mortgage lenders left and right offering me to refinance down to a lower rate with them. When it comes to qualifying for a loan like verifying your income, credit score, debt to in come ratio etc, will it help to say that I receive additional income from my househack tenants aside from my w2? Thanks in advance. I appreciate all your support.

[Joseph Chiofalo]

Hi Gustavo, 

Unless your claiming that rental income on tax returns lenders most likely will not consider that into your ratios. 

What terms do you have on your current loan? 

Is it a single family property or multi-family?

[Gustavo Mendoza]

It's a SFH. I live in the property. So it's a conventional owner occupied loan with 20% down. But now that you mention it, "do I really need to report it for taxes"? I mean I'm just a single guy with a 3bd 2bth SFH looking to save money by sharing the house with roommates.

[Derek Brickley]

Quote from @Gustavo Mendoza:

It's a SFH. I live in the property. So it's a conventional owner occupied loan with 20% down. But now that you mention it, "do I really need to report it for taxes"? I mean I'm just a single guy with a 3bd 2bth SFH looking to save money by sharing the house with roommates.

 I'm not a tax advisor or CPA so LOL I can't comment on if you need to or not.  If you were looking to use the rental income from your roommates to help you qualify then you would need claim it.  Chances are you didn't use it when you purchased so unless something changed you should still qualify and there wouldn't be benefit to including that.  There are some community incentives in the Merced area, but would depend on your situation whether that is something that could work.  Feel free to reach out if it might be helpful to learn more about those.

[Rick Albert]

Assuming your financial situation hasn't changed, if you are refinancing to a lower rate, I'm not sure why you need the house hacking income. If you qualified before, you should be able to qualify again. 

[Robert Portal]

Unless you claim that income on your taxes then you cannot use it for additional source of income. If you bought the home yourself, with a higher rate at the time, and nothing else has changed (income, new debts, FICO drop) then you may be able to refinance just fine by yourself. Happy to provide a quick analysis. 

[Gustavo Mendoza]

Thanks guys! This is great help. So on that point, when should I consider reporting it on taxes? I'm guessing the way to do it would be by opening up an llc, and going through there. I don't have much, it's just my owner occupied 3bd 2bth SFH renting out two rooms generating a total income of 1400/mo. Doesn't even cover the full mortgage.

[Gary Nelson]

Hey Gustavo! It sounds like you're on a good path considering refinancing for a lower rate. Since your situation hasn't changed much, you should be able to qualify without relying on your house hacking income, especially if you qualified initially without it. As for reporting the rental income, it's worth considering if you plan to leverage it for future refinancing or other financial opportunities. Some lenders may not be able to apply or only be able to apply a fraction of the gross rents (if any depending on the lender) to contribute to your Debt-To-Income-Ratio. Setting up an LLC could be an option down the road if you expand your investments, but for now, it might be simpler to report it as personal income. Keep in mind that reporting rental income could open up some tax deductions, which might benefit you in the long run. Best of luck with the refi!

[Gustavo Mendoza]

Thank you! That was very helpful! 

[Robert Portal]

Quote from @Gustavo Mendoza:

Thanks guys! This is great help. So on that point, when should I consider reporting it on taxes? I'm guessing the way to do it would be by opening up an llc, and going through there. I don't have much, it's just my owner occupied 3bd 2bth SFH renting out two rooms generating a total income of 1400/mo. Doesn't even cover the full mortgage.

Always consult with a CPA. You can start by reporting it on your Schedule E but you will be subject to taxes. However, you will be able to count as income in the future. 

[Ashish Acharya]

Yes, you can definitely mention the income from your househack tenants when applying for a refinance. Lenders typically consider rental income as part of your overall income, which can help improve your debt-to-income ratio and potentially make you eligible for a better rate. Just be prepared to provide documentation, such as leases or bank statements, to verify the rental income. Including this income could strengthen your application and increase your chances of securing a lower rate.

[Bryan Maddex]

Hey Gustavo!

Yes, Fannie and Freddie both allow Boarder Income but you need a 12 month history of it. As other have said, unless your income changed or you have added debt since you purchases, you usually should qualify for a refinance. 

As far as "should you refinance now"?  Really depends on your loan size, current interest rate, credit score, and value of your home.  Any lender should be able to give you a super quick calculation of estimated savings based on those factors to see if this is a good time for you to refi!  

My team can help in CA if you would like a quick review tomorrow.