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I am currently putting my first home up for rent and am planning on purchasing a new home. How will this affect my approval for a new home loan. How long of a lease should I require on my property so it does not negatively affect my application for a new loan?
DO NOT DO IT. This is the best advice I can give you. I've been in the landlording business for over 30 years and I can tell you that you're about to make a BIG mistake.
How much is your current TOTAL PAYMENT? By total payment I mean; principle, interest, taxes and insurance. If it is GREATER THAN ONE HALF of the rent you will collect YOU WILL BE LOSING MONEY. This is a common mistake of newbie landlords, and what leads them to years of MONTHLY LOSSES, ANGUISH, and often FORECLOSURE, if not BANKRUPTCY.
They tend to overlook NORMAL RENTAL EXPENSES of; allowance for VACANCY, allowance for REPAIRS, allowance for UPKEEP, LEGAL FEES, TURNOVER EXPENSES, etc.
Back in "the day" there were 3 reasons to own SFH (single family homes) as rentals; appreciation, tax benefits and cash flow.
Appreciation; we have been in, and will likely to continue in a "non inflationary" if not DEFLATIONARY period of RE prices.
Tax benefits; these pretty much went away in the (IIRC) '86 tax reform.
Cash flow; like I said, unless you're getting about 2%/month of the value of the place YOU WILL BE LOSING MONEY.
Even if you have to take a loss, GET RID OF THE OLD HOUSE.
In answer to your question. I think the banks are only allowed to consider 75% of the NET RENT as part of your income. The fact that you are asking this means you're not prepared to be a landlord.
No doubt. Also, your insurance will be increased as you have a non-owner occupied home and a second house. Everything else has been said. If you get a bad renter (it happens) you'll have months of legal expenses without pay, in addition to damages, loss of value, and your old neighbors will hate you. Renting is a business, not a hobby.
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