When a borrower has a history of renting the subject or other property, rental income is generally reported on Form 1040 of the IRS, Schedule E of the borrower`s personal return, or on the rental real estate income and expenses of a partnership or S Corporation form (IRS Form 8825) of a business tax return. If the borrower has no history of leasing the property or if, in some cases, the returns do not accurately reflect the current income and expenses of the property, the lender may have the right to use a fully executed outstanding lease. Examples of scenarios justifying the use of a lease are If the property is not currently leased, leases are not required and Form 1007 or Form 1025 can be used. fully executed leases for determining gross rental income to be used to calculate net rental income (or loss). Make a comment below and let us know what you think of the owner requirements of Fannie and De Freddie. Fannie Mae buys or securitized mortgages secured by real estate that are principal residences, second homes or investment properties. You will find information on LTV/CLTV/HCLTV ratios and representative credit quality requirements for each type of occupancy in the authorization matrix. In order to allow the lender to determine related rental income, the lender must determine whether or not the rental property has been in operation throughout the fiscal year or for part of the year. In some cases, the lender`s analysis may establish that the use of alternative rental income calculations or the use of leases to calculate income are more appropriate methods for calculating qualifying income for rental properties.
This directive may apply to the refinancing of a rental property or other rental properties of the borrower. If the borrower owns real estate – with the exception of the leased property – the lender must document gross (net) monthly rental income with the borrower`s latest federal income tax return, which contains Schedule 1 and Schedule E. Copies of the current lease can be replaced if the borrower is able to document a qualifying exception. See the partial or no history vote for tax returns below. When the lender identifies the rental income of the property, the loan is eligible as a second home as long as the income is not used for qualification purposes and all other requirements relating to second homes are met (including the occupancy requirement mentioned above).