Proof of rental income for HARP refi DTI purposes ...

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yadfgp

LoanSafe Member
Dec 17, 2009
38
0
0
I've been trying to do a HARP refi the last 6 months or so through various lenders.

I have a rental property which I was able to do a HARP refi on about 5 months ago. The payment went up a bit higher since it's now a 15 year term as opposed to it having been a 30 year loan before.

I had since been trying to do a HARP refi on my primary but have been unable to due to my DTI currently being at about 70%. I can't go through my current servicer since they are Green Tree.

So I'm paying off all my debt now, in about 4 months I will have paid off my car, and plan on putting what little bit of CC debt I have left all onto 1 card, so that way I show as only having a $120 a month payment.

With that plan in motion, my problem is my rental income. Last year I showed some heavy losses. This year I show almost no loss at all due to it having been rented out all year. I rent it out for a $1000 a month.

In my previous attempts at doing a HARp refi, they asked for my past 2 years tax returns. Here's where a potential problem rears it's ugly head. Last year was not a great year as I said earlier. This year as I said has been great.

So with a HARP refi, when I try and refi in November, how can I use all that rental income to my advanatge when showing all my sources of income to bring my DTI to an acceptable level? A $1000 a month is quite a bit of money for me, with it counted I show $6000 a month gross, without it, $5000 a month. It could be the determining factor in getting approved for a HARP refi.

Or might I just have to wail till early next year, once this years tax return is done?

It seems as though in my experience at least, that when pursuing a HARP refi, they always seem to want your 2 most recent tax returns.


Now what exactly is the purpose of that?

To show a salary history?

Might rental income from a previous years tax returns, even if it was over a year ago, be a potential road block for a HARP refi if that years return shows alot of loss from a rental property?

I'm hoping someone in the know can give me some insight on this subject.


Thanks for any help!
 

TomEason

LoanSafe Guide
Jun 18, 2009
12,390
85
48
SF Bay Area CA
yadfgp

I've been trying to do a HARP refi the last 6 months or so through various lenders. I have a rental property which I was able to do a HARP refi on about 5 months ago. The payment went up a bit higher since it's now a 15 year term as opposed to it having been a 30 year loan before. I had since been trying to do a HARP refi on my primary but have been unable to due to my DTI currently being at about 70%. I can't go through my current servicer since they are Green Tree. So I'm paying off all my debt now, in about 4 months I will have paid off my car, and plan on putting what little bit of CC debt I have left all onto 1 card, so that way I show as only having a $120 a month payment. With that plan in motion, my problem is my rental income. Last year I showed some heavy losses. This year I show almost no loss at all due to it having been rented out all year. I rent it out for a $1000 a month. In my previous attempts at doing a HARp refi, they asked for my past 2 years tax returns. Here's where a potential problem rears it's ugly head. Last year was not a great year as I said earlier. This year as I said has been great. So with a HARP refi, when I try and refi in November, how can I use all that rental income to my advanatge when showing all my sources of income to bring my DTI to an acceptable level? A $1000 a month is quite a bit of money for me, with it counted I show $6000 a month gross, without it, $5000 a month. It could be the determining factor in getting approved for a HARP refi. Or might I just have to wail till early next year, once this years tax return is done? It seems as though in my experience at least, that when pursuing a HARP refi, they always seem to want your 2 most recent tax returns. Now what exactly is the purpose of that? To show a salary history? Might rental income from a previous years tax returns, even if it was over a year ago, be a potential road block for a HARP refi if that years return shows alot of loss from a rental property? I'm hoping someone in the know can give me some insight on this subject. Thanks for any help!
Thanks for your post. The anwers to all your questions can best be supplied by an experienced loan broker whose office does HARP re-fis. You might contact Erik Lindstrom, who's a Loansafe member and frequent poster.
 

Evan Bedard

Call 1-800-779-4547
Loan Safe Mortgage
Aug 26, 2007
18,837
48
48
San Diego, California
www.LoanSafe.org
Now what exactly is the purpose of that?

To show a salary history?

Might rental income from a previous years tax returns, even if it was over a year ago, be a potential road block for a HARP refi if that years return shows alot of loss from a rental property?

I'm hoping someone in the know can give me some insight on this subject.
Like a purchase or a traditional refinance, your lender will verify your previous two years earnings to determine if you meet the DTI requirements for the loan, but of course will use your current year-to-date as well. From my understanding HARP is limited to a maximum back-end DTI of 55 percent, anything exceeding that will fail to meet the requirements of the automated underwriting system. This ratio is generally required for the loan to be sold back to Fannie/Freddie.

Here's some info Erik has previously posted on DTI restrictions for HARP:

Debt Ratio Section: In order to maintain the credit quality of our servicing portfolio for the HARP Refinance, we have implemented overlays to the maximum Debt-to-Income (DTI) allowed.

The Revisions are as follows:


  1. Primary Residence: 55%
  2. Second Home: 50%
  3. Investment Property USING subject rental income to qualify: 45%
  4. Investment Property NOT Using subject rental income to qualify: 50%


or HARP the program is limited to a maximum back end debt ratio of 55 percent, anything exceeding that will not pass the automated underwriting system. This is required in order for the loan to be sold back to Fannie/Freddie.
 

yadfgp

LoanSafe Member
Dec 17, 2009
38
0
0
That was an excellent post Evan. Thanks for that info.

I guess my real confusion comes from just being initially approved for a HARP refi.

It's all done by my info and what is entered into a software program right? The HARP DU program?

So here's my scenario when it comes time for me to make yet another phone call to try and do a HARP refi in about 4 months or so...

I tell them my income (with rental property) $6000 a month.

They look up my credit report. They see about $3000 in combined monthly mortgage debt. That includes both my homes (rental and primary.)

They'll also see my revolving CC debt of around $150.00. And that's all my debt.

For a grand total of about $3150 a month in debt. Which puts me at just a tad over 50 percent.

My credit score is around 750, I've been at the same job almost half my life (17 years).

No lates in about 3 years, property is owned by Fannie Mae. I'm hoping to HARP refi my primary.

So after that, the DU software program takes it from there righT? And will give the corresponding thumbs up or not? And once I submit my tax returns and all the other paperwork, then that's where my proof of rental income is a priority?

How would I go about showing my rental income for all of 2013 when the tax year it not yet over? Will it be from copies of the rental check from my tenant? Bank statements? Or....???

Sorry for all the questions. I've just been trying to get this damn HARP refi done for the last 6 months or so and I really don't want to walk into yet another denial. Especially when I think I finally see a light at the end of the tunnel.
 

TomEason

LoanSafe Guide
Jun 18, 2009
12,390
85
48
SF Bay Area CA
yadfgp

That was an excellent post Evan. Thanks for that info. I guess my real confusion comes from just being initially approved for a HARP refi. It's all done by my info and what is entered into a software program right? The HARP DU program? So here's my scenario when it comes time for me to make yet another phone call to try and do a HARP refi in about 4 months or so... I tell them my income (with rental property) $6000 a month. They look up my credit report. They see about $3000 in combined monthly mortgage debt. That includes both my homes (rental and primary.) They'll also see my revolving CC debt of around $150.00. And that's all my debt. For a grand total of about $3150 a month in debt. Which puts me at just a tad over 50 percent. My credit score is around 750, I've been at the same job almost half my life (17 years). No lates in about 3 years, property is owned by Fannie Mae. I'm hoping to HARP refi my primary. So after that, the DU software program takes it from there righT? And will give the corresponding thumbs up or not? And once I submit my tax returns and all the other paperwork, then that's where my proof of rental income is a priority? How would I go about showing my rental income for all of 2013 when the tax year it not yet over? Will it be from copies of the rental check from my tenant? Bank statements? Or....??? Sorry for all the questions. I've just been trying to get this damn HARP refi done for the last 6 months or so and I really don't want to walk into yet another denial. Especially when I think I finally see a light at the end of the tunnel.
Thanks for your post. Why not ask your loan officer these questions.? He/she will guide you on how to do everything. After all that loan officer / broker / agent will earn a commission on your HARP refi loan. That's what they do.
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,113
182
63
San Diego, California
www.loansreduced.com
Hi Yadfgp,
In all honesty Tom is right, these are things you should be discussing with your loan officer. However I can give you my perspective as a loan officer what we look at to determine debt to income ratio which HARP is capped at 55 percent back end.

Debt to income includes your NEW mortgage payment after refinance, taxes & insurance - not your old one. It will also include any revolving debts like car payments, student loans, credit card payments, child support, alimony and the like.

I think what you may be missing is that we don't calculate the rental income from what you're actually receiving in rent. We determine the rental income from how you file your tax returns the past 2 years and average the income/loss depending on that. If you showed that you needed to make significant repairs to a property or writing off tons of expenses, the income we would be able to use for the rental income would diminish significantly. The only amount we can add back into the income are one time repairs, depreciation and depletion, nothing else. The way you structure your tax returns for both you personally and the rental income is very crucial as most people want to keep their tax liability low, in turn this can hurt your eligibility to refinance. We MUST use the rental income from the tax returns, we cannot show cancelled rent checks to use the current rent or an average from the past 2 years tax returns to current. The reason for this is because we have no idea what happened to the property and are unaware of how you're going to be doing the taxes. If the rental income is declining, we can only go off one year rather than two.

Yes Fannie Mae's desktop underwriter determines your eligibility but the information submitted into the system will be verified by an Underwriter and if that information changes (calculation of income...etc) it could affect your eligibility if those numbers go up or down.

HARP is something that I've specialized in for quite some time but in all honesty it's very similar to a conventional loan and follows the same funding process only has guidelines that are a little more relaxed than other programs.