216 form

[PhiloFarnsworth]

I got an assignment for a condo/investment property refi with a 1007 and 216. When I met the owner for the inspection and asked what the tenant was paying it turns out that she doesn't actually charge rent. The tenant is her mother and niece. They pay the mortgage payment, condo fee and utilities. Not real complicated to explain but the 216 form has me a bit stumped.
First, there really is no "rent" or rental agreement, per se. In fact, I am a little surprised they are doing this as an investment, but that isn't my call. Anyway, it certainly is a potential investment property so the 1007 and determining market rent makes sense.
The 216 says to not count owner occupied units in the income section. There is no rental agreement and so no official tenancy. Her mother gives her no money directly, just writes a check to the bank and the condo association.

My question: should I call it as being rented, count the "rent" as the monthly mortgage (and escrow), plus the fee? And then explain the differences between the agreement as is an a real tenancy? Or say it is NOT rented and explain the agreement in this context?

I would lean toward the former and would ask the client through the AMC but that may take days with this client. But maybe I am missing something and someone here has a quick and definitive answer.

 

[J Grant]

Mark yes, it is rented but then explain at atypical terms to a family member.

 

[EddieB]

I would mark "No" unless their is some contracted payment agreement. Sounds like just a familial arrangement to me.

 

[Mike Kennedy]

"say it is NOT rented and explain the agreement in this context"

 

[Mile High Trout]

hypothetically, if it was rented, these would be the figures most likely.

Currently, a family arrangement so NOI is actully nill.

These are important points to consider.

A purchasers prequalification amount may be tied to existing holdings. That is to say they will have less prequalification amount if they're currently paying mortgage on a rental as well. This is what keeps many a single family buyer, from buying two properties.

It's different from lender to lender, how long a property must be leased, in order to release the available borrowing power back to the loan applicant. In many cases, your rental income amount is only able to offset your purchasing power, after you've had 2 or more full years of income on your rental. So until you've rented that unit for 2 years, the mortgage cost of the rental has a direct tie in, to your future prequalification amount.

I mention this because with investment properties, that's where you have to be keen about creative financing and creative loan approaches. It's very important to clearly and accurately describe this situation, so nothing comes back to you if the lender credits the borrower when in fact, the NOI is nill.