I have a friend that owns a home in Californian. He bought it when the market was up and now it is upside down, he owes more than it's worth because of the current market.

Instead of selling it for a lost, he plans to take advantage of the cheaper selling homes in this economy and buy another home to rent. The income from the rent will some how off set his upside down payment.

The problem he faces, is that is current income/debt ratio will not qualify him for enough money to buy the property he wants, because he is still paying on his current home so with the new property thats two mortgage payment. He wanted to include the potiental rent from the new property as income, but his realitor told him he could not, because it has to be income claimed on his taxes.

I am not so sure about this, because I had qualify back in 2001 for a new loan using the potiental income from my house that I was still living in. I think I had to show a signed lease at closing for my house.

Has the rules changed? How can he qualify for this second home?