Freddie Mac announced changes to rental income requirements in Bulletin 2018-19 issued October 31, 2018. The significant changes are outlined below. Rental Income to Qualify Freddie Mac has implemented the following requirements when using rental income for qualifying:
- Borrowers must own a primary residence in order to use the rental income from the subject property to qualify when purchasing a rental property or converting a primary residence to a rental property. Rental income may not be used for qualifying if the borrower does not own a primary residence.
- Borrower’s purchasing a rental property or converting their primary residence to a rental property are subject to the following restrictions if the borrower does
not have a minimum of 1-year investment property management experience:
- The rental income may only be used to offset the PITI payment of the rental property, and
- Any rental income exceeding the PITI payment cannot be added to the borrower’s gross monthly qualifying income
- Freddie Mac also removed the requirement that limited the net rental income used for qualifying to 30% of the borrower’s monthly qualifying income if the borrower did not have a minimum of 1-year history of rental property management
Rental Income Documentation
- Two (2) years’ tax returns will no longer be required; only the borrower’s most recent tax return required. Rental income must be annualized unless documentation provided the property was renovated or purchased late in the prior calendar year
Freddie Mac’s updated rental income requirements apply as follows:
- Loans submitted on or after April 12, 2019 must follow Freddie Mac’s new guidelines
- Loans submitted prior to April 12, 2019 have two options:
- Freddie Mac’s current rental income requirements may be followed as long as the loan funds no later than May 24, 2019, OR
- Freddie Mac’s new rental income requirements may be followed
The Homebridge Freddie Mac guidelines have been updated with this information and posted on the Homebridge website at www.homebridgewholesale.com.
If you have any questions, please contact your Account Executive.
Can I use rental income from the vacating primary residence?
When buying another primary residence, VA loans allow the buyer to count up to 100% of the new rental income on the departing residence. In order to count the rental income, a 12-month lease must be provided, and most lenders even require proof of the first month's rent or security deposit.
Does Freddie Mac allow rental income?
Rental income may be used in qualifying the borrower(s) provided that the requirements of Guide Section 5306.1 and the documentation requirements contained in Guide Sections 5102.3 and 5102.4 and Chapter 5302 are met. Use the following chart as a tool to help summarize these rental income requirements.
How many years of tax returns does Freddie Mac require for rental income?
Federal income tax return requirements
Complete signed federal individual (Form 1040) income tax returns for the most recent two years.
Does Freddie Mac allow short term rental income?
We are updating requirements for traditional rental market income sources (e.g., rental income from a one-year lease). A one-year term lease lends support to income stability and continuance, so a one-year history of rental income reported on Schedule E is acceptable.