Fannie Mae Rental Income Guidelines And Requirements

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Fannie Mae Rental Income Guidelines And Requirements

This ARTICLE On Fannie Mae Rental Income Guidelines And Requirements Was PUBLISHED On October 20th, 2019

Fannie Mae Rental Income
Gustan Cho Associates

Updated Fannie Mae Rental Income Guidelines that take effect:

  • Gustan Cho Associates are here to discuss the new rental income guidelines for investment properties and primary multi-family homes set forth by FANNIE MAE
  • A recent announcement made on October 2nd, 2019 has updated rental income guidelines on all Fannie Mae conventional investment property mortgage products and multi-family primary mortgage products
  • Gustan Cho Associates do not have any LENDER OVERLAYS on FHA, VA, or Conventional mortgage
  • This guideline update will affect thousands of Americans across the nation
  • In this blog, we will detail the new guideline and how it can affect your mortgage qualifications
  • The change surrounds borrowers with less than one year of rental income

In this article, we will cover and discuss recently updated Fannie Mae Rental Income Guidelines.

New Updated Fannie Mae Rental Income On Rental Properties

What is Fannie Mae Rental Income On Rental Properties

Fannie Mae has announced they are implementing new requirements for determining rental income will count as qualifiable income.

  • The goal of these changes is to support sustainable homeownership for borrowers purchasing an investment property without prior history of managing rental properties
  • This rule also applies to a two-to four-unit primary residence
  • The new policy is put in place to address certain risks such as occupancy fraud

It is Fannie Mae’s MISSION STATEMENT to sustainable homeownership.

What Are The New Changes On Rental Income By Fannie Mae

What Are The New Changes On Rental Income By Fannie Mae

This new guideline demonstrates how much qualifying income can be used for a borrower when purchasing a principal residence or a one to four-unit investment property. The lender must consider the following: 

  • If the borrower currently owns a principal residence or is paying rent where they live and has at least a one-year history of receiving rental income or documented property management experience, then there is no restriction to how much rental income can be used

As long as you have a ONE-year history of receiving rental income, you may utilize as much positive rental income as shown on your financial statements (tax returns or lease agreement). 

How The New Fannie Mae Rental Income Guidelines Affect Borrowers With No Landlord Experience

How The New Fannie Mae Rental Income Guidelines Affect Borrowers With No Landlord Experience

If a borrower currently owns a principal residence or is paying rent where they live and has less than one year of receiving rental income or documented property management experience

Primary home – rental income in an amount NOT exceeding the portal of principal, interest, taxes, and insurance for the subject property can be added to the borrower’s gross income:

  • Meaning you can offset the mortgage payment with the rental income for debt to income purposes, but nothing additional
  • For a 4-unit property, any excess income from the additional units will not count as qualifying income

Investment property – Positive rental income can only be used to offset the principal interest taxes and insurance for the subject property. Very similar to the rule above.

  • If a borrower is buying an investment property and does not currently on a primary residence for having a housing expense where they live (RENT), then NO RENTAL INCOME FROM THE SUBJECT PROPERTY CAN BE USED
  • In short, if you plan to buy an investment property and you do not currently have a primary housing expense, the rental income from that property cannot be used for qualification purposes

It is important to understand that this new policy does not apply to HomeReady loans with rental income an accessory unit. Please see our HOMEREADY BLOG for more information. 

When Does The New Fannie Mae Rental Income Guidelines Take Effect

These new rental income requirements go into effect on December 7th, 2019. All Case Files must be submitted to desktop underwriter honor before this date. Otherwise, new guidelines will apply. For more information on this guideline change, Please see the Fannie Mae Selling Guide Announcement SEL-2019-08

Setback For New Real Estate Investors

Which results in Setback For New Real Estate Investors

This guideline change will affect new entrepreneurial investors looking to buy a two-to four-unit primary residence who do not currently own a home or pay rent. You now need to qualify for the whole property without any help from future rents received. The old rule would allow you to use 75% of the fair market rents received to qualify.

Other Options For Real Estate Investors

What are Other Options For Real Estate Investors

As you can see the guidelines are ever-changing and all mortgage products. This is a pretty substantial change for Fannie Mae. One we have not seen in a while. If you are interested in purchasing investment properties, we have quite a few loan programs for you. Here are a couple of products we would like to highlight:  

Gustan Cho Associates are always offering new mortgage products and giving you updates with mortgage guidelines. This was a major announcement from Fannie Mae. One that will impact many clients reaching out to us. We receive phone calls about buying a 4-unit property trying to be self-sustainable with rental income. This will change that process if you do not currently have a housing expense. Guidelines are ever-changing, please check our website often for breaking news. We strive to keep you up to date on any changes surrounding conventional, FHA, VA, and USDA mortgages.  For questions on this new guideline, or for any clarification, please call Mike Gracz on 630-659-7644 or send an email to mgracz@gustancho.com. We look forward to hearing from you.

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