Rates and down payment requirements differ for an owner occupied property, a second home or vacation home and a rental property. Lenders will verify the property will indeed be used as a rental. Some lenders will send an inspector to the property soon after the closing, knock on the door and see who answers if there’s some question whether or not the loan was used to finance a rental or a primary residence.- Lenders look for income that has at least a two year history. It must be consistent with a likelihood of continuance for at least three years. It doesn’t matter the nature of the income be it from part time work or sales commissions. Two years of history and a likelihood of continuing in the future.
- Statements from bank and investment accounts used for a down payment and closing costs will be reviewed. All pages from the statement will be needed, even if one of the pages you have is blank. The source of deposits must documented. Random deposits can’t be counted toward your closing costs and down payment funds.
- Self-employed borrowers and those needing commission and bonus income must also provide tax returns for the previous two years.
- Borrowers will sign IRS form 4506-T allowing lenders to independently order copies of your federal tax returns and compare the income on those returns with the income that appears on your loan application.
- For your first rental property, any rental income from the unit cannot be used to help qualify. You must qualify with the new mortgage without the benefit of any rent. For subsequent purchases rental income can be used to help qualify. Lenders want to see a history of you being a landlord, verified with copies of Schedule E from your income tax returns.
- Some lenders limit the number of financed properties before approving a new loan request. The maximum that Fannie Mae allows is 10 but individual lenders can have their own limits, just no more than the Fannie guideline.
- Lenders can add additional qualifying guidelines for rental properties called “overlays” that may make it more difficult to qualify. If your loan request is declined due to an overlay, switch lenders.
- You can add other borrowers on a loan application to help qualify but when adding other borrowers, their current debts as well as income must be counted.
- Both the property as well as the borrower must be approved. The property must appraise to at least the sales price, be in good condition and be supported with recent sales in the area of similar properties. Even the best of borrowers can be declined if the property cannot be approved.
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