It’s the age of the “gig economy.” Today’s technology gives everyone the opportunity to be mini entrepreneurs—whether it’s driving for Uber, delivering groceries for Shipt, or renting out your home on Airbnb. And if Airbnb is your gig, then you’re in luck.
Earlier this year, Fannie Mae launched a mortgage refinance pilot program for Airbnb hosts. Through Fannie Mae’s program, people can now claim Airbnb income on their refinance application. Currently only Quicken Loans, Citizens Bank, and Better Mortgage are available to underwrite mortgages through this test program, but with the strength of the gig economy steadily growing, that will soon change.
Nathan Blecharczyk, Airbnb co-founder says, “Some of the nation’s largest financial institutions understand that Airbnb is an economic empowerment tool that can generate important income for families, and they are working to recognize this.”
Currently, the program is limited to Airbnb hosts who use their primary residence for short-term rental listings. Borrowers are also required to have at least 12 months of earning history on Airbnb (24 months for Better Mortgage). Members can download proof of income statements from their Airbnb accounts, but that income must be on the borrower’s tax returns to qualify.
There are plenty of reasons people refinance their homes. For some, it’s to get a better interest rate and bring their monthly mortgage payments down. Refinancing saves an average of $3,100 per year on mortgage payments. For others, especially those enjoying a steady income from Airbnb rentals, the refinance frees up cash to make home improvements. These improvements allow hosts to charge higher rates for their Airbnb rentals, earning them a higher income.
Vice president of customer solutions at Fannie Mae, Jonathan Lawless, says, “We want to enable [Airbnb] borrowers to be able to refinance and lower their mortgage costs and tap into their housing equity.”
Fannie Mae’s pilot program could help people who’ve ended up in a bad situation from defaulting on their mortgages. None of the underwriting criteria has changed, however. Credit score and loan to value on the home requirements remain the same. But the ability to use short-term rental income definitely makes a difference in qualifying. Airbnb income increases the income side of a borrower’s debt-to-income ratio.
Lawless makes the point that “income is a very important part of the mortgage application, and [Fannie Mae] looks for income that’s sustainable over time. But Airbnb earnings, just like any other form of earnings, have potential risks in the future. [Fannie Mae] doesn’t see it any different than any type of job or commission or a bonus type of earnings that [we] recognize.”
Before Fannie Mae introduced the pilot program, Airbnb income couldn’t be claimed on a refinance application unless the property was re-categorized from a primary residence to an investment property. But re-categorizing to an investment property could bring on higher interest rates, negating the potential savings from refinancing. Fannie Mae’s program is a test program, however, because home sharing is fairly new.
Vishal Garg, CEO of Better Mortgage, says, “Because of the sharing economy, the way people use their homes has changed…and now finally the mortgage industry has caught up. We are able to use that income in actually underwriting the value of [the] house, [the borrower’s] ability to make a payment on that loan, and then qualify [a borrower] for a lower rate.”
Like any new technology, Airbnb has faced challenges. The company has come up against stiff pushback from tenant advocates. They argue it contributes to the housing shortage and is driving up rents. Critics of the program think it could disrupt the housing market; The ability to use the home as a revenue stream will keep homeowners from putting their homes on the market. But those for the program argue that it will help homeowners maximize their investments.
Chris Lehane, head of global policy and public affairs for Airbnb, says, “The whole big idea behind Airbnb…was how could people unleash or capture the value of the home that they were in. Typically, it’s the greatest expense for any family. [Fannie Mae’s] announcement is a next chapter in that process.”
Only time will tell how beneficial this program could be for homeowners. Fannie Mae will evaluate the initiative and may decide to back mortgages from any lender that chooses to count Airbnb income in refinancing (as long as short-term rentals aren’t against local laws). So if you’re a homeowner, maybe it’s time to turn that spare bedroom into a money-making machine.