refinance

How to refinance a house you're renting out

Rental income doesn't necessarily count
Rental income doesn't necessarily count © Jcjgphotography/Shutterstock.com

You might assume that rental income can be counted toward the guidelines to refinance a house you're renting out. But Gary Parkes, vice president of mortgage lending for Guaranteed Rate in the Atlanta area, says lenders tend to be suspicious of rent unless the landlord is a professional property investor. Consequently, lenders typically allow only a portion, if any, of that rent to be relied on to qualify, especially in the case of a new tenancy.

Rent is even trickier if the tenant is a family member because the tenancy isn't an arm's-length transaction, LaDue warns. That close relationship between the landlord and renter creates a different set of risk criteria for the lender -- and more documentation requirements for the borrower.

"Your Uncle Fred is much more likely to cut a deal under the table with you than Joe Blow off the street, so (the lender) will scrutinize it, and in many cases, they will want to see a history of rent payments being made (and documented) by an independent means like tax returns and bank statements," LaDue says.

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