Original Question:

Borrower was selling his old primary- he couldn't sell it so ended up selling it through a land contract.

He now wants to buy an investment property

Can we use 75% of the income he gets from land contract to offset the mortgage on credit?

What do we need other than a land contract copy?

ANSWER:

if land contract was accepted in 2018, yes you could use income from land contract similar to rental property - You would take 75% of gross monthly rental - PITIA = net rental ($1000 month land contract payment x 75% = 750 - PITIA 700 = 50 net rental)

Partial or No Rental History on Tax Returns

In order for the lender to determine qualifying rental income, the lender must determine whether or not the rental property was in service for the entire tax year or only a portion of the year. In some situations, the lender’s analysis may determine that using alternative rental income calculations or using lease agreements to calculate income are more appropriate methods for calculating the qualifying income from rental properties. This policy may be applied to refinances of a subject rental property or to other rental properties owned by the borrower.

If the borrower is able to document (per the table below) that the rental property was not in service the previous tax year, or was in service for only a portion of the previous tax year, the lender may determine qualifying rental income by using

Schedule E income and expenses, and annualizing the income (or loss) calculation; or
fully executed lease agreement(s) to determine the gross rental income to be used in the net rental income (or loss) calculation.

	If ...	Then ...
the property was acquired during or subsequent to the most recent tax filing year,	the lender must confirm the purchase date using the settlement statement or other documentation. If acquired during the year, Schedule E (Fair Rental Days) must confirm a partial year rental income and expenses (depending on when the unit was in service as a rental). If acquired after the last tax filing year, Schedule E will not reflect rental income or expenses for this property.
the rental property was out of service for an extended period,	Schedule E will reflect the costs for renovation or rehabilitation as repair expenses. Additional documentation may be required to ensure that the expenses support a significant renovation that supports the amount of time that the rental property was out of service. Schedule E (Fair Rental Days) will confirm the number of days that the rental unit was in service, which must support the unit being out of service for all or a portion of the year.
the lender determines that some other situation warrants an exception to use a lease agreement,	the lender must provide an explanation and justification in the loan file.