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Can rental income that is generated from short-term rentals be used to qualify?

Rental income derived from the subject property is acceptable on a two- to four-unit principal residence in which the borrower occupies one of the units, or a one- to four-unit investment property.  If the transaction is a purchase money transaction, information on Forms 1007/1025 may be used to derive rental income (including short-term rental income) for qualifying purposes.  If the transaction is a refinance, rental income may be used when reported on the borrower’s individual tax returns (Schedule E).  The alternative to the tax returns is a lease agreement; however, since short-term rental occupants usually execute a terms and conditions agreement (not a lease agreement), this alternative would not meet our requirements and therefore the income would not be eligible.

Rental income derived from other property (not the subject property) must be documented either by a lease agreement or the most recent years tax returns.  A lease agreement is usually not an option in the case of short-term rentals since the occupants do not execute a lease agreement.  However, if the borrower is reporting rental income (including short-term rental income) on the most recent year's tax returns, then rental income may be considered as qualifying income. 

See B3-3.1-08, Rental Income for complete documentation requirements and B5-6-02, HomeReady Mortgage Underwriting Methods and Requirements, for information regarding rental income on a one-unit principal residence.

 

This content was curated directly from Ask Poli customer inquiries to provide clarity and guidance on trending topics. See FAQs: Income Assessment for more related questions.

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