Lenders to Allow Airbnb Income in Home Refinancing

Airbnb has been gaining attention for the last years. It has been the favorite of tourists all around the world. Now, homeowners can use their rental income from Airbnb to refinance their home mortgages.

Recently, the Federal National Mortgage Association (FNMA) or what’s famously known as Fannie Mae started to allow lenders to let the hosts of Airbnb use their rental income to refinance their mortgage. This step opens the mortgage industry to catch up with the sharing economy even with a limited number.

Refinancing allows borrowers to pay off their loan by getting a new loan but with lower interest rates. A borrower may also choose to cash out some or all of its home equity to pay for other debt like student loans or credit card as well as home improvements.

Before this change in the industry, lenders would hold a borrower seeking to refinance their home mortgage loan with strict requirements if their income includes from their rental homes.

Airbnb’s rental income can come to very high to very low depending on the season. In short, the pay isn’t reliable. As a result, lenders would charge rental homeowners with higher interest rates, or worst, disqualify them.

At present, Fannie Mae is the sole federal agency guaranteeing home loans that allow lenders to qualify home rental income as qualifying income in their home refinance loan applications.

According to Evan Tarver, a condo owner in Austin that he rents through Airbnb, the once unsteady side gig turned out to be a stable one. His condo unit has been in Airbnb for eight months.

In the past, lenders only allowed rental income to be considered on a commercial property loan which is classified as an investment property. For banks, refinancing an investment property can be risky. It has higher mortgage rates and has different loan terms.

A finance manager at Maple Holistics, Nate Masterson, said it took several years for regulatory boards such as Fannie Mae to consider rental income from Airbnb to pay for a mortgage.

He also said that after the housing crash in 2008, lenders took a strict approach in approving loan applications. They should decide on how much money a borrower can take ensuring they had the capability of repaying the loan.

However, Airbnb’s success made it one of the powerful tools for economic empowerment among homeowners. It made it easier for homeowners to apply for refinancing.

This new change from Fannie Mae comes along with new regulations as well. It requires borrowers to have at least a year’s worth of Airbnb income to qualify for a refinance option and only from a primary residence. With those requirements, the borrower can use 75% of its Airbnb income to be eligible if you have a profit for a year. Two years of Airbnb income allows the borrower to count 100% of it toward total income.

The key to this rule change is the verification Airbnb provides to Fannie Mae. Airbnb hosts will not need to come up with proof on their own. Airbnb can now offer lenders with a ‘proof of income statement’ that many home sharing sites don’t provide.

Allowing Airbnb income in refinancing is a model for those homeowners who wish for lending to go forward like allowing income from Uber and Task Rabbit for home refinance.

Some lenders still count Airbnb rental income against the borrowers. But for Fannie Mae and some lenders, the income from Airbnb can acquire lower interest rates for a home refinance. It’s because their extra income lessens their debt to income ratio which is essential to Fannie Mae.

Since the program was launched last February, lenders have new customers that have Airbnb income included in their home refinance application. These new borrowers have $48,000 as an average Airbnb income per year. They also have a take out a cash-out refinance of $150,000. The standard loan amount for a customer with Airbnb-included income is $335,000.