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Rental Income on a Departing Residence When a Property is Owned Free & Clear
Question:
What are the conventional guidelines on departing residence used for rental income for a first-time landlord when the property is owned free and clear?
Answer:
Both Fannie Mae and Freddie Mac amended their rental income guidelines for departing residence in this past year or so. The change: if the borrower does not have at least one year of landlord history, the borrower is limited to using 75% of rents, minus PITIA. In your case, the departing residence is owned free and clear, so there is a lot of positive cash flow that cannot be used AND can only offset the taxes and insurance for the property that is owned free and clear. This change hurts these scenarios the most.
No one likes these changes, but I suppose they have their reasons……
I’m assuming you need this income to qualify the borrower for maximum financing for their new home, and these newer guidelines prohibit this use without one year of landlord history. Sadly, the agencies do not offer lenders discretion in special circumstances, and the guidelines are hard and fast.