Renting Out Your Current Home to Buy a New One

October 14th, 2015

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Fannie Mae has recently changed a policy that was very difficult for many people. This policy, imposed during the height of the financial 2008 crisis, was intended to be temporary in nature. So it was expected to change at some point, but it sure did take a long time. The policy formerly said in order to rent out your current primary residence and show rental income to offset the current mortgage debt and help buy a new primary residence, that you had to have 30% equity in your current primary residence as well as 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 the borrower converts their current principal residence to an investment property. This standard policy, in place prior to 2008, simply calls for a mortgage borrower to show a lease, and the first months rent and security deposit checks, 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 to help in qualifying to buy a new primary residence.

However, realize that currently, as of this writing, this is only for Fannie Mae backed Conforming loans, not Freddie Mac loans and not 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 what rules may apply to you if you plan to rent your current primary residence before buying a new primary residence.

Restrictions may apply.

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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