All Forum Posts by: Darrell Johnson

If the lender follows Fannie Mae guidelines, this is one of most interest to you. You may have to help the lender understand it if they are not following it correctly:

https://www.fanniemae.com/content/guide/selling/b3/3.1/08.html#Calculating.20Monthly.20Qualifying.20Rental.20Income.20.28or.20Loss.29

"Calculating Monthly Qualifying Rental Income (or Loss)" "When Schedule E is used to calculate qualifying rental income, the lender must add back any listed depreciation, interest, homeowners’ association dues, taxes, or insurance expenses to the borrower’s cash flow. Non-recurring property expenses may be added back, if documented accordingly." "Treatment of the Income (or Loss)" "If the rental income (or loss) relates to a property other than the borrower's principal residence: If the monthly qualifying rental income (as defined above) minus the full PITIA is positive, it must be added to the borrower’s total monthly income. If the monthly qualifying rental income minus PITIA is negative, the monthly net rental loss must be added to the borrower’s total monthly obligations. The full PITIA for the rental property is factored into the amount of the net rental income (or loss); therefore, it should not be counted as a monthly obligation."

The last sentence clearly states that after including the net rental income in the denominator or loss in the numerator, that the rental property mortgage payments are not also supposed to be included in the numerator as monthly obligations. So if your DTI excluding rental properties is D/I, your existing Sch E rental income is $4000/month and ongoing Sch E rental expenses (do not include amortization of expenses already incurred or depreciation) plus current rental PITIA payments are $3,600/month, your new purchase rental income is 75%*$2,000=$1,500/month, and your new purchase rental PITIA is $1,800/month, your new DTI would be (D+($1,800-$1,500))/(I+($4,000-$3,600))

"Rental Income Worksheet – Individual Rental Income from Investment Property(s) (up to 4 properties) (Form 1038)"

If the lender follows Fannie Mae guidelines, this is one of most interest to you. You may have to help the lender understand it if they are not following it correctly:

https://www.fanniemae.com/content/guide/selling/b3/3.1/08.html#Calculating.20Monthly.20Qualifying.20Rental.20Income.20.28or.20Loss.29

"Calculating Monthly Qualifying Rental Income (or Loss)" "When Schedule E is used to calculate qualifying rental income, the lender must add back any listed depreciation, interest, homeowners’ association dues, taxes, or insurance expenses to the borrower’s cash flow. Non-recurring property expenses may be added back, if documented accordingly." "Treatment of the Income (or Loss)" "If the rental income (or loss) relates to a property other than the borrower's principal residence: If the monthly qualifying rental income (as defined above) minus the full PITIA is positive, it must be added to the borrower’s total monthly income. If the monthly qualifying rental income minus PITIA is negative, the monthly net rental loss must be added to the borrower’s total monthly obligations. The full PITIA for the rental property is factored into the amount of the net rental income (or loss); therefore, it should not be counted as a monthly obligation."

The last sentence clearly states that after including the net rental income in the denominator or loss in the numerator, that the rental property mortgage payments are not also supposed to be included in the numerator as monthly obligations. So if your DTI excluding rental properties is D/I, your existing Sch E rental income is $4000/month and ongoing Sch E rental expenses (do not include amortization of expenses already incurred or depreciation) plus current rental PITIA payments are $3,600/month, your new purchase rental income is 75%*$2,000=$1,500/month, and your new purchase rental PITIA is $1,800/month, your new DTI would be (D+($1,800-$1,500))/(I+($4,000-$3,600))

"Rental Income Worksheet – Individual Rental Income from Investment Property(s) (up to 4 properties) (Form 1038)"

Jim, find a lender that knows how to calculate the DTI correctly, as clearly they do not

Here is the Fannie Mae guideline that says they allow HELOC and 401K loans to be used for both the down payment and reserves:

https://www.fanniemae.com/content/guide/selling/b3/4.3/15.html "Borrowed Funds Secured by an Asset Borrowed funds secured by an asset are an acceptable source of funds for the down payment, closing costs, and reserves, since borrowed funds secured by an asset represent a return of equity. Assets that may be used to secure funds include automobiles, artwork, collectibles, real estate, or financial assets, such as savings accounts, certificates of deposit, stocks, bonds, and 401(k) accounts." They have no requirement of time after receiving the funds, so find a lender that doesn't either. The only requirement that Fannie Mae has is:

"evidence that the funds have been transferred to the borrower."

If the lender follows Fannie Mae guidelines, this is one of most interest to you. You may have to help the lender understand it if they are not following it correctly:

https://www.fanniemae.com/content/guide/selling/b3/3.1/08.html#Calculating.20Monthly.20Qualifying.20Rental.20Income.20.28or.20Loss.29

"Calculating Monthly Qualifying Rental Income (or Loss)" "When Schedule E is used to calculate qualifying rental income, the lender must add back any listed depreciation, interest, homeowners’ association dues, taxes, or insurance expenses to the borrower’s cash flow. Non-recurring property expenses may be added back, if documented accordingly." "Treatment of the Income (or Loss)" "If the rental income (or loss) relates to a property other than the borrower's principal residence: If the monthly qualifying rental income (as defined above) minus the full PITIA is positive, it must be added to the borrower’s total monthly income. If the monthly qualifying rental income minus PITIA is negative, the monthly net rental loss must be added to the borrower’s total monthly obligations. The full PITIA for the rental property is factored into the amount of the net rental income (or loss); therefore, it should not be counted as a monthly obligation."

The last sentence clearly states that after including the net rental income in the denominator or loss in the numerator, that the rental property mortgage payments are not also supposed to be included in the numerator as monthly obligations. So if your DTI excluding rental properties is D/I, your existing Sch E rental income is $4000/month and ongoing Sch E rental expenses (do not include amortization of expenses already incurred or depreciation) plus current rental PITIA payments are $3,600/month, your new purchase rental income is 75%*$2,000=$1,500/month, and your new purchase rental PITIA is $1,800/month, your new DTI would be (D+($1,800-$1,500))/(I+($4,000-$3,600))

"Rental Income Worksheet – Individual Rental Income from Investment Property(s) (up to 4 properties) (Form 1038)"