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Rental Income from Current Home – Vacating for a new Home

If you’re a current homeowner intending to rent your current home and purchase a new primary residence, it’s helpful to understand what’s necessary for us to consider rental income in qualifying you.  Utilizing rental income will require we document you have money in reserve, to account for the need to maintain and repair real estate, as well as prepare for possible vacancies.

Conventional financing

Fannie Mae along with Freddie Mac make the rules for conforming conventional loans, and these types of loans make up the majority of loans made nationally.  Jumbo loans typically follow Fannie Mae’s guidelines, but may be stricter than Fannie Mae.

Fannie Mae:

Fannie Mae utilizes projected rental income. We’ll order a form 1007 comparable rent schedule from one of our appraisers so they can provide an opinion of market rent for your home.  They’ll do this by comparing your home against three other rental properties which are as similar as possible to yours.  The appraiser selects comparable rental properties based on size, proximity, and condition.

We’ll then utilize 75% of the appraiser’s opinion of market rent to offset the housing payment on your current home.  The reason we utilize 75% rather than 100%, is to account for possible vacancies.  For example, if the appraiser’s opinion of market rent is $2,700, then we’ll utilize $2,025 in rental income to offset your current housing payment.

Freddie Mac:

Freddie Mac utilizes documented rental income.  We’ll need:

a. Lease to a tenant (presumably as 12+ month lease).

b. Document you receiving the security deposit and first month’s rent, or the first two month’s rent payments.

We’ll utilize 75% of the lease to offset the housing payment on your current home.

FHA financing

We’ll need:

a. The property you are purchasing must be 100+ miles away from your current home [to count income from a primary residence you’re departing]

b. We’ll order an appraisal from one of our appraisers to opine the market value of your home, as well as the rental value of your home.  We’ll need to document you having at least 25% equity [to count income from a primary residence you’re departing]

c. Lease to a tenant (presumably as 12+ month lease)

We’ll utilize the lesser of 75% of the appraiser’s opinion of market rent versus your lease.

VA financing

The VA is the most flexible loan program of the bunch.  We can either:

Utilize a lease to a tenant, adding that income from the lease in qualifying

OR

If our underwriter determines the rental market is strong, we can utilize prospective rental income to offset the housing payment