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Old 07-16-2010, 09:52 PM
 
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I moved across the country for a new job and rented out my old house instead of selling it because the market in my previous city was terrible.

I am now thinking about buying a house in my new location.

What are the rules on qualifying for a mortgage in this situation? Can I count the rental income from my old house as income? Do I have to have reserves for both mortgages? Etc.

Any advice would be much appreciated!
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Old 07-17-2010, 07:01 AM
 
Location: Richmond, VA
2,454 posts, read 3,938,201 times
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Quote:
Originally Posted by mn12345 View Post
I moved across the country for a new job and rented out my old house instead of selling it because the market in my previous city was terrible.

I am now thinking about buying a house in my new location.

What are the rules on qualifying for a mortgage in this situation? Can I count the rental income from my old house as income? Do I have to have reserves for both mortgages? Etc.

Any advice would be much appreciated!
I quite literally just did this (bought a house while renting another). If you have a tenant, what they'll do is count the mortgage on the old house as a liability and the incoming rent (minus fees, etc.) as income.

For me, it was a wash. The rent covers the mortgage (I had a large amount of equity in the house and did a recast before I moved to ensure tenant rent would cover the mortgage plus an accumulating maintenance reserve).

I will say I got a lot more scrutiny from the underwriters, I think because of the extra debt, but in the end it's just a risk/reward judgement by the bank. Does the customer have enough income and assets to cover two houses if there is no tenant in the second house? If you do, you'd probably be okay.
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Old 07-17-2010, 08:44 AM
 
Location: Laguna Niguel, CA
768 posts, read 3,831,826 times
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There are new guidelines when converting a primary residence to a rental - typically it is applied to people who are going to be renting out the home they currently own & live in to a rental, but it is also applicable to homes that have had this done since the past tax year. The guidelines require that you have 25-30% equity in the vacating home in order to rent it out and use that rental income to offset it's mortgage payment. FHA requires 25% equity per an appraisal, and conventional requires 30% equity. Conventional also requires you to have at least 2 months of the PITI payments on both homes in reserves; if there isn't the 30% equity then the rental income cannot be used to offset the payment and then 6 months of PITI on both payments are needed. FHA doesn't have these stipulations on reserves. The rental income must be documented with a copy of the fully executed lease agreement, and the receipt of a security deposit from the tenant and deposit into the borrower’s account.

If you have rented out the home and claimed the income on your tax returns already, then it is not considered a primary-residence-turned-rental and the income/expenses off Schedule E of the tax return qualifies (supported by a copy of the lease).
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Old 07-17-2010, 08:36 PM
 
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A few years ago banks would give you credit of 75% of your monthly rent when factoring in your debt to income ratio. Not sure if that guideline is still in use. But certainly things are tighter and if you are a new landlord I imagine they look it over carefully.
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