House Money
One of the first questions many soon-to-be homebuyers ask themselves is if they will be able to handle the mortgage payments.
Now, many homebuyers are hoping they can ease their mortgage pain by letting their house make money.
The idea is fueled by internet sites, such as Airbnb, which allow homeowners to function like a hotel and advertise short-term rentals of a spare room.
While the Airbnb model probably is the most popular, other websites have sprung up, like “Storeatmyhouse.com” and “CurbFlip.com,” to allow owners to sell spare square footage for storage or parking.
Building company PardeeHomes even offers a home with a “GenSmart” bedroom suite that can be accessed by a separate entrance. Most buyers want the space for an extended family member, but some “talk about using the space for a roommate,” says Shannon Marler, new home specialist with Pardee.
But “it is unlikely” these income streams could help you qualify for a bigger mortgage than you’d receive based strictly upon income from your job, says Charles Chedester of Midwest Family Lending, Des Moines, Iowa.
That’s because lenders want proof, not plans.
“If you document rental income for one, or maybe two years, that income might help you refinance, but not get a (purchase) mortgage,” adds Stuart Feldstein, president of SMR Research. Documenting means including rental income on your income tax statement.
Even buyers purchasing a duplex or two-flat with plans to rent the other unit probably won’t be able to have anticipated rent considered.
Some exceptions exist, like if the extra unit currently has a reliable renter, Chedester says. However, the lender will probably still want the buyer to have cash reserves, he adds.
In fact, inexperienced landlords often don’t realize that renting has costs, too, like higher property insurance bills. About half of income tax returns that include rental income show a net loss, Feldstein says.
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