Renting Out Your Current Home to Buy a New One

October 14th, 2015

for rent

Fannie Mae has recently changed a policy that was very difficult for many people. This policy was imposed during the height of the financial 2008 crisis. It was intended to be temporary in nature. So it was expected to change at some point. It sure did take a long time. The policy formerly was related to renting out your current primary residence and showing rental income to offset the current mortgage debt. This would help buy a new primary residence. It previously said you had to have 30% equity in your current primary residence. You also had to have six months of your mortgage payment on the current primary residence in additional cash reserves.

The purpose of this policy was to ensure that borrowers had adequate capacity and financial reserves to successfully manage multiple properties. Lenders can now follow the standard rental income and financial reserve requirements when converting their current principal residence to an investment property. This standard policy simply calls for a mortgage borrower to show a lease and the first months rent and security deposit checks. This will be enough to verify the rental income on the current primary residence. Then 75% of that rental income can be used to offset the mortgage on the current primary residence. This helps in qualifying to buy a new primary residence.

However, realize that as of this writing this is only for Fannie Mae backed Conforming loans. This is not for Freddie Mac loans and not for jumbo loans. And I have not heard of any new policy from FHA either. So be sure to ask your lender exactly what type of loan you are applying for. And ask what rules may apply to you if you plan to rent your current primary residence before buying a new primary residence.

Restrictions may apply.

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Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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