How does mid term rental income affect appraisal, if at all

[Alessandro Stammes]

Just bought my first duplex here in Norfolk VA. I'm using a 203k loan and my plan is to live in one of the units for a year and then turn both units into mid term rentals for nurses. My hope is to get rid of PMI when I refinance into a conventional loan (asap). I could not find any info on how mid term rental income can affect an appraised value. Does anyone know how this work? I'm 40k short of that magic number with the closing appriasal and I know with the projected NOI doing this strategy I could get there easily. Do banks look at this NOI or is it just for long term rentals exclusively (total noob here, sorry)

[Reid Chauvin]

@Alessandro Stammes - congrats on your purchase! Appraisals do not consider rental income in determining value for conventional or government loans (or for any type of residential loan that I am aware of). Appraised value is determined based upon recent sales of nearby similar properties. The appraiser will make value adjustments based on differences in features of the property compared to the 'comps', (ex: bigger square footage would be a positive adjustment). 

The appraiser WILL do a rent schedule so that the market rent for the prospective property can be factored into your debt-to-income ratio. The Lender must request for this to be done though, and this can't be done for every property or loan type. 

One thing for you to keep in mind with your strategy is the timing of your refinance and how your occupancy will affect the loan-type. If you are no longer living in the property (or even if you are still in the property but moving out very soon) then you will likely have to use an investment property conventional loan, which has a maximum loan to value of 75% for a refinance.