Buy and Retain Policies

What happens if you want to take advantage of the market by buying a new primary residence and rent out the current house?  That would depend on the type of loan you are applying for, each have their own applicable guidelines and individual banks may have more restrictive requirements.


Federal Housing Administration (FHA)


In most cases rental income from the property being vacated may not be used to qualify for the new mortgage.  The borrower must qualify using the full principal, interest, mortgage insurance, taxes, homeowners insurance and HOA fees of the vacated property, and the new property even if a lease is provided.


Exceptions: There are two circumstances when rental income from the property being vacated can be considered when qualifying for the new mortgage.  However, keep in mind you can only use 75% of the rental income.

1. Corporate relocations: The borrower is being relocated with a new or by a current, employer to an area not within reasonable and locally recognized commuting distance.  A minimum 12 month lease is mandatory and evidence of receipt of the security deposit and/or first month's rent is required.
2. Sufficient equity exists in the vacated property: The borrower has a minimum of 25% equity 

Conventional

Up to 75% of the rental income may be used to offset the mortgage payment in qualifying if there is documented equity of at least 30% in the existing property The rental income must be documented with:

1. A copy of the fully executed lease agreement, and
2. The receipt of the security deposit from the tenant and deposit into the borrower's account. If the 30% equity in the property cannot be documented, rental income may not be used to offset the mortgage payment.

When not able to meet the above guidelines, the borrower must qualify using the full principal, interest, mortgage insurance, taxes, homeowners insurance and HOA fees of the vacated property and the new property. Also the borrower must have six months reserves for both properties.

Veteran's Administration

VA doesn't currently have Buy and Retain guidelines, refer to individual bank's requirements.

It's always important to consult your mortgage professional and get pre-qualified before contacting a realtor or looking for a new property.