The worksheets are:Rental Income Worksheet – Principal Residence, 2– to 4–unit Property (Form 1037),Rental Income Worksheet – Individual Rental Income from Investment Property(s) (up to 4 properties) (Form 1038),Rental Income Worksheet – Individual Rental Income from Investment Property(s) (up to 10 properties) (Form 1038A), andRental Income Worksheet – Business Rental Income from Investment Property(s) (Form 1039).https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B3-Underwriting-Borrowers/Chapter-B3-3-Income-Assessment/Section-B3-3-1-Employment-and-Other-Sources-of-Income/1032995141/B3-3-1-08-Rental-Income-06-03-2020.htm

If there isn't value added and if you can't get the appraisal value (to make 75-80% LTV) you will not be able to pay your parents their total principal back within the first 6 months.

Besides...I'm not sure I could get what I need from a refi cash-out to cover the mortgage (1st lien) and the HELCO (2nd lien).Details of the financing below: Purchase price: $255KMortgage: 3.0% for 30 yearsHELOC: 5% (as of today) for an 10 year interest only paymentRehab costs: $80KMonthly mortgage/taxes/insurance is: $2395HELOC is : $433 (as of today)I have the opportunity to lock in the HELOC rate 3 times in the life of the Loan, but it would up my expenses.Here are my options with the HELOC:1) Interest only – option30 year calculation (360 months)Use the current prime rate, add in your margin 1.5 to get the rate, and only look at your Interest portion to determine your minimum payment2) Rate lock - optionWill be 20 years (240 months) of principal and interest paymentsRate = current prime rate, + your margin 1.5 + HELOC current lock in margin .75Please offer your thoughts as I'm sure I should lock in at whatever the interest rate is now, but it would up my HELOC monthly payment to $1050 for 20 years.Thank you

If you pay additional principal every month, it is more nuanced.Hope this helps!

I'd hang onto that loan for the next 37 months.Since the property is cash flowing like crazy, I'd also take ~20% of the cash flow and pay down the principal balance over the next 37 months.

Johannes Urpelainen.I have recently joined this forum to accelerate my growth in multifamily, hospitality, and capital raising.I am Principal at Oasis Equities, a real estate company I recently launched.

Depends on what else you could do with the principal (capital) that you would be paying down the balloon faster. 

You are not paying down the principal balance so if you sell or refinance, the outstanding principal will be higher.

These are all things I would recommend you to put in the legal document.For my situation I’ve offered to pay for large repairs, but that cost will go back into the principal balance. 

Our current mortgage payment (principal & interest only) is around $600, the new payment (p&i) that the bank is proposing is $1100 at 6.5% interest.