o. Rental Income

Verification:  Multi-Unit Property Securing the VA Loan

Verify

·   cash reserves totaling at least 6 months mortgage payments (principal, interest, taxes, and insurance - PITI), and

·   documentation of the applicant’s prior experience managing rental units or other background involving both property maintenance and rental.

Analysis:  Multi-Unit Property Securing the VA Loan

Include the prospective rental income in effective income only if

·   evidence indicates the applicant has a reasonable likelihood of success as a landlord, and

·   cash reserves totaling at least 6 months mortgage payments are available.

The amount of rental income to include in effective income is based on 75% of

·   verified prior rent collected on the units (existing property), or

·   the appraiser’s opinion of the property’s fair monthly rental (proposed construction).

Note:  A percentage greater than 75% may be used if the basis for such percentage is adequately documented.

Verification:  Rental of the Property Applicant Occupied Prior to the New Loan

Obtain a copy of the rental agreement on the property, if any.

Analysis:  Rental of the Property Applicant Occupied Prior to the New Loan

Use the prospective rental income only to offset the mortgage payment on the rental property and only if there is no indication that the property will be difficult to rent.  This rental income may not be included in effective income.

Obtain a working knowledge of the local rental market.  If there is no lease on the property, but the local rental market is very strong, the lender may still consider the prospective rental income for offset purposes.