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I'm a sales counselor with a national builder and our lender has the same requirements. In fact, only the rental income reported on tax returns will be used.
@frugalQ wrote:
Now, I have read over and over, and from my understanding, the 30% rule is only if you are converting your primary residence to an investment As the result Of the purchase transaction.
Since I've already moved out of the house and the renter has moved in, how should the rental income be calculated? Can we use the lease? Because of when we close, I'm worrying that the IRS will not have our tax returns processed in time.
The 30% equity rule applies when you have converted a primary residence to a rental property and the rental income hasn't yet been reported on your tax returns, the "result of the purchase transaction" part isn't part of the guidelines. Once it's reported on your tax returns then no equity is needed.
https://www.fanniemae.com/content/guide/selling/b3/6/06.html#Conversion.20of.20Current.20Principal.2... has the full details. Once it's reported on your tax return then https://www.fanniemae.com/content/guide/selling/b3/3.1/08.html#Calculating.20Monthly.20Qualifying.20... applies.
The good thing is we're at the end of the year, so you can file your 2014 tax returns claiming the rental income very soon and it'd eliminate the issue you are facing.
Good luck!
@frugalQ wrote:
Question: on the rental income calc sheet, is the mortgage payment on the rental annualized? If so, is the rental income annualized also? (Ok, that's two questions)
It is, but you must enter in the "fair rental days" number correctly, as that number is used to determine how the rental income is calculated. For example I had a client who rented out his home just for a few months in 2012, but they incorrectly put 365 days for "fair rental days". They had to write a letter of explanation that they messed up when they put in the # of days, as well as provide other documentation that supported the correct amount of days the home was rented out for.
great thx! for the clarification!!
Happy New Year