converting primary to rental and purchasing new primary - DTI?

5 Replies

I'm going to purchase a new primary residence in Feb/March of next year.  I know that my income will not qualify me alone.  Will I be able to count 75% of expected rental income for my old primary when calculating income?  Obviously I am living in my current primary and don't have any rental history for that house, but will rent it out after I close on the new primary.  

As background, I borrowed 75% of the home value in a conventional loan, 15% in a home equity loan, and have about a 90LTV.  I have 4 years of rental experience with other rentals that I own.   

@Gloria Mirza Your chances of going FHA on the purchase of your next home won't happen, unless you can qualify with both payments. FHA requires at least 25% equity in your departing residence which it doesn't look like you have.

On conventional, it's a little tricky honestly because every bank is different in their guidelines/overlays. Some banks will be okay counting rental income if you have a rental analysis from a licensed appraiser and some banks won't be okay with it. The trick is to find out which bank will be ok with counting rent if an appraiser does an analysis. 

If you don't want to go through the effort of finding that bank, then you'll have to make sure it's rented before you close. You'll need a rent lease and a copy of the deposited checks for rent deposit and first month's rent. Hope this helps....

Hi @Gloria Mirza ,

Once you go into escrow on the new home, how long will it take to get a lease signed, and security deposit made so we can show underwriting that it's a "real" lease, for your departing residence? 

I already have a friend (not related) lined up to rent the house.  I could probably provide the lease and deposit within a week of having an offer accepted.  Would this help me avoid the cost of an appraisal?

Originally posted by @Gloria Mirza :

I already have a friend (not related) lined up to rent the house.  I could probably provide the lease and deposit within a week of having an offer accepted.  Would this help me avoid the cost of an appraisal?

That'll let rental income from that departing residence count towards helping your DTI w/ REI friendly lenders. :)

I actually saved one last month where the wife lost her job 2 days after going into escrow. Grats madam, now your job is landlord, go find a tenant for the departing residence to prove it to underwriting.

You would be wise to advertise and screen applicants. Renting to a friend is never a good Idea. Usually leads to having one less friend. 

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here