Owner Occupied Duplex Refinance - Posted by Chris


Posted by David Butler on July 17, 2010 at 17:39:53:

Hello Chris,

There are several issues in the mix here, with the zoning being perhaps the primary one. Another issue that you and/or the lender are silent on here is your own income qualifications, in the absence of rental income being included. Those two items play off each other.

Generally a lender isn’t in the business of policing local zoning, per se, outside of verifying the property is zoned correctly for the type of loan being applied for. But, if the property is not properly zoned for the actual usage, most conventional lenders, particularly if writing to GSE (Fannie/Freddie, etc.) conforming guidelines, won’t count the rental income toward your total income for the critical debt-to-income ratio they need to use in qualifying you for whatever loan amount you are seeking.

So… something seems to be missing in the information you are providing here. I would start by being very sure of the zoning, and the zoning regulations themselves, so far as the effect the property specifically. Then I would get clear answers from the lender to get firmer specifics. Is it the zoning, or is it the change in DTI that will occur if your rental income is not included in your total income?

If you can’t get more detailed specific answers, you might be well advised to get with a local mortgage broker and go through your circumstances with him/her. See whether they have the same issues, and more importantly, will they be more specific in addressing them. More importantly, if they are not able to place your loan with a conforming conventional lender, try to find out if they have a lender who will take on a nonconforming loan such as this.

Again… I have a nagging hunch the income picture is the more likely problem here. That can be a deal killer, particularly in view of the stronger federal legislation that is just coming into play with regard to lenders obligations to assure that the borrower can reasonably qualify for the loan - if that borrower occupies the property as their primary residence. If they can’t count on that rental income due to the zoning issues, and you are otherwise short to qualify, you’ll have a tough row to hoe. So get to the bottom of that as your starting point.

Hope that helps, and best wishes for your success.

David P. Butler
Nascent Equity &
Hotspur Investment Group


Owner Occupied Duplex Refinance - Posted by Chris

Posted by Chris on July 15, 2010 at 12:58:21:

I bought a home 4 years ago as a single family property, although it is set up similar to a duplex, I want it to be viewed as a Mother-In-Law property preferably. There is one main enterance to a split-entry entryway…each with a door to its entrance. I’m a single guy, so I rent out as much as I can. It is not zoned as a duplex/Multi family. It is zoned and was built as a single family property. I rent out the basement unit to a family as well as the free rooms in the upstairs to roommates that live with me.

On my taxes I was advised by a CPA to report the rental income on Schedule E and mark that it is non-owner occupied (box 2) because I pro-rate my owner-occupied portion of the expenses and put it on Schedule A. This allows me to deduct as much as possible from my expenses.

However, when I tried to refinance it I’ve run into a problem. The refi company doesn’t want to allow me to refinance it as an owner-occupied Single Familiy residence. They didn’t like how it was reported on taxes. Any suggestions on how to report this on my taxes so that I can get the best refinance rates?

If I mark on Schedule E that the entire property is owner occupied then I wont be able to deduct as much from the rental expenses. Any help is appreciated!!!

By the way. I have not submitted my 2009 taxes yet, its on extension. Thus, what I gave the refi company was only what I was ready to submit. In previous years the property was involved with a partnership, so I reported the income on a schedule C for the LLC. This will be the first year I am reporting it on a Schedule E.