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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 refinance loans. 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 primary residence (assuming you do live there some of the time) and still accounting from 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!

In the red hot housing market of the past few years, sellers usually have multiple offers, often getting more than their listing price. If you are using a VA loan to back your purchase you may worry that sellers might choose conventional-loan-backed offers over yours. Here are a few things you can do to stay competitive with VA loan-backing in a seller’s market.

The Difference Between VA Loans and Conventional Mortgages

First, it’s important to understand what makes a “strong offer.” Sellers are looking for the bid with the most amount of money and least amount of hassle. That means they are looking for offers that look like the buyer is in a very good financial position. Conventional mortgages will typically require a minimum of 5% as a down payment whereas VA loan borrowers can put nothing down in some cases. Consider this situation: the bidding war on a house pushes the price well beyond the listed price. There are two offers for exactly the same amount, one with conventional funding and a 20% down payment, and one with VA loan backing and 0% down payment. If the home appraisal comes back lower than the contracted sale price, these buyers will have to come up with extra money from their own personal funds to cover the difference. Looking at the two offers, the seller is likely to choose the buyer with a 20% down payment, perhaps thinking that they have more money to work with. 

VA loans are extremely good loans as well though, typically making up about 15% of all home purchases. These mortgages, partially backed by the Department of Veteran Affairs, provide veterans and their spouses with excellent benefits, like low or no-down payment requirements, no private mortgage insurance, and no set credit score requirement. And they close on time, with no problems, just as often as conventional mortgages do. So how can you convince your seller that your VA loan offer is the best in the bunch?

Work with an Experienced Lender

Take care to find a mortgage lender who specializes in VA loans. Their knowledge of ins and outs of the funding can help you know how to strengthen your offer. They might also be able to add a note in your pre-approval letter mentioning their know-how and how many recent VA loans they have had.

Increase the Down Payment

If you can afford to contribute anything as a down payment, the seller will probably consider your offer stronger. If you can put down 5% that will match the minimum of many conventional loans. Plus putting down 5% will decrease the VA loan funding fee you’ll have to pay from 2.3% to 1.65%. 

Add Favorable Terms

If you can’t make a larger down payment, you could consider offering more to the “earnest money” deposit made before closing. You could really make a mark on the seller by offering 5% for example, rather than the required 1%. This signals commitment and a financial ability to close the deal. Or you could offer to waive some of the contingencies to show your dedication to this purchase.

Competing with a VA loan in a hot market is definitely doable as long as you come prepared with a little knowledge of how to sweeten the deal!