Did you know that your AirBnB rental income can help you qualify for a refinance loan? In the past using any rental revenue from your “primary residence” was not acceptable on mortgage applications. However, starting in 2018 mortgage government-sponsored entity (GSE) Fannie Mae partnered with lenders to allow borrowers to both claim a property as a primary residence and use AirBnB rental income to qualify for a refinance loan. If you’d love to refinance your loan, here’s what you need to know:
Why Refinance?
As a homeowner and a vacation rental host, you may want to make your earnings stretch even farther by refinancing into a lower interest rate. The savings could free up cash to make improvements to your AirBnB or allow you to work on other financial projects.
You might also want to refinance if you want to have more financial freedom sooner. You could refinance from a 30-year loan into a 20-, 15-, or 10- to pay less interest and own the property outright in a shorter time frame.
Maybe you need a large chunk of cash to do some serious repairs or renovations on the property. Or perhaps business is going so well that you would like to acquire another AirBnB rental. You could choose a cash-out refinance to pull equity out of the house and put it toward your goals.
Huge Benefit
In order to qualify for a refinance mortgage, you will need to have sufficient income and assets, as well as a low enough debt-to-income (DTI) ratio. That’s where your AirBnB rental income can be a huge help now. That consistent revenue stream can count as income and can reduce your DTI, making it easier to meet the loan requirements. With traditional investment properties, refinancing often comes with tougher restrictions and the interest rates are usually slightly higher than on primary mortgages. By allowing you to count your AirBnB as a primary residence (assuming you do live there some of the time) and still accounting for the rental income in your overall financial positives, lenders are making refinancing much more affordable and achievable.
Proof Required
Once you apply for a refinance on your AirBnB property, you will need to provide certain documents proving your AirBnB. The lender will want to see your mortgage documents showing you have owned the property for at least 12 months. You will also need to provide your contract with AirBnB, as well as your “Proof of Income” statement from the company. The lender will use that record to verify that you have been renting part or all of your primary residence for at least 12 months, and it will average your earned rental income during that time to determine how much extra income to add to your mortgage application. (If you’ve been renting for longer than a year, many lenders will want to average your income from the past 24 months, rather than 12.)
This documentation is important for the mortgage industry because if borrowers were allowed to simply state that they may have extra income from rents, or if they just showed income from one or two months, they might be qualified for loans larger than they could afford, putting them at risk for foreclosure down the road.
So if you participate in AirBnB hosting, refinancing for better rates and terms or some extra cash may be easier than you thought!