Departure Income FHA, VA, Fannie, and Freddie

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In the context of establishing a borrower’s DTI or debt to income ratio, departure income is defined as income derived from leasing out your current primary residence (the departure residence) when purchasing a new primary residence. If you currently own a primary residence there are three ways to deal with that property if you are purchasing a new primary residence.

1. You can sell the property
2. You can keep both properties if you can qualify for both properties
3. Use the current primary as an investment property and use
the rent to offset the mortgage payment

FANNIE MAE (FNMA)

The following requirements must be met:

Pending Sale and Title transfer has not occurred 

  • Both current and proposed mortgage (PITIA) payments must be included in the DTI            

Pending sale current mortgage (PITIA) payment can be excluded from qualifying with all of the following:        

  • Copy of an executed sales contract for the current residence          
  • Written confirmation that all financing contingencies have been cleared (e.g. Closing agent/Escrow)

Conversion to Second Home                 

  • Both current and proposed mortgage (PITIA) payments must be included in the DTI

Conversion to Investment Property                           

  • Both current and proposed mortgage (PITIA) payments must be included in the DTI      
  • See Determining Net Rental Income for consideration of rental income for the converted property  

FREDDIE MAC (FHLMC)

Required Action. The following requirements must be met:

Pending Sale and Title transfer has not occurred                    

  • Both current and proposed mortgage (PITIA) payments must be included in the DTI. Reserves required, see Minimum Reserve Requirements 

Conversion to Second Home               

  • Both current and proposed mortgage (PITIA) payments must be included in the DTI
  • Reserves required, see Minimum Reserve Requirements
  •  

Conversion to Investment Property     

  • Both current and proposed mortgage (PITIA) payments must be included in the DTI
  • Reserves required, see Minimum Reserve Requirements

Pending sale current mortgage (PITIA) payment can be excluded from qualifying with the following:  

  • Copy of an executed non-contingent sales contract for the current residence or  Lender’s commitment to the new buyer for the current residence (if the executed sales contract includes any financing contingency) or         
  • Copy of an executed buyout agreement that is part of an employer relocation plan where the employer/relocation company takes responsibility for the outstanding mortgage(s)

FEDERAL HOUSING ASSOCIATION (FHA)

A hard and fast rule with FHA is in order to get departure Income from a property you’re leaving your new purchase has to be 100 miles from the departure property. If it is more than 100 miles from the current principal residence must obtain:       

  • An executed lease agreement for a minimum of 1 year after the loan closing date is required         
  • Evidence of the security deposit and/or first month’s rent paid Sufficient Equity in Vacated Property          
  • The borrower must obtain an appraisal from the departure property evidencing market rent and has LTV of 75%
  • 1 Unit – appraisal form FNMA 1004 / FHLMC 70, and comparable rent schedule form FNMA 1007 / FHLMC 1000 & operating income statement form FNMA 216 / FHLMC 998 documenting fair market rent         
  • 2 to 4 Units – appraisal FNMA Form 1025 / FHLMC Form 72 (IMPORTANT NOTE TO READER) The appraisal is not required to be completed by an FHA roster appraiser.

VETERANS ASSOCIATION (VA)

The following requirements must be met:

Conversion to Investment Property      

  • Both current and proposed mortgage (PITIA) payments must be included in the DTI     
  • A fully executed rental agreement
  • Rental income may not be included in effective income. Use of the prospective rental income only to offset the mortgage payment on the rental property        
  • If there is no rental agreement, the prospective rental income may still be considered to offset the mortgage payment if the local rental market is determined to be strong and the property will not be difficult to rent. Must obtain a working knowledge of the local rental market (e.g. Appraisers/Realtors) 
Jay Boetscher "The Rehabman" has closed and funded over 2500 renovation transactions all over the country. Currently running the Renovation Financing Division for American Financial Network. Jay is licensed to close FHA, Conventional, and all types of renovation home loans in all fifty states.

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