For the past few years, I’ve heard the same concern from homeowners thinking about moving: “I’d love to buy another house, but I don’t want to give up the mortgage I have now.”
That makes sense. Maybe you bought or refinanced when rates were considerably lower, and selling means giving up that loan. Or perhaps you’ve always thought about turning your current home into a rental, but worried that carrying two mortgages would prevent you from qualifying for the next house.
New Fannie Mae rental-income guidelines could make that conversation much more interesting.
Under updated rules, a homeowner converting a current primary residence into an investment property – often called a “departing residence” – may be able to use qualifying rental income from that property when applying for the mortgage on their new primary residence.
In plain English: You may not have to sell one house to buy another.
There are rules, of course. This isn’t as simple as telling your lender, “I can rent my house for $3,000 a month,” and adding $3,000 to your income. Lenders have documentation requirements and calculate qualifying rental income according to Fannie Mae guidelines. Your history of managing rental property can also affect how much of that income can be used.
For borrowers without sufficient property-management experience, positive rental income generally can be used to offset the housing expense on the departing residence rather than creating additional qualifying income. That distinction matters, but it can still be extremely helpful. Instead of your existing mortgage payment simply weighing against your debt-to-income ratio, eligible rental income may help offset that obligation.
Think about what this could mean for homeowners who would otherwise feel trapped in their current house. Maybe you need another bedroom, want to move closer to family or are ready for a different community. Keeping the existing home could allow you to preserve a valuable asset while a tenant helps cover its expenses.
It could also be an opportunity to begin building a real estate portfolio without purchasing a traditional investment property first. Your former home becomes the rental and your next home becomes your primary residence.
But don’t start advertising your house for rent before talking with a qualified lender. Loan type, rental documentation, reserves, property-management history and your overall financial picture still matter.
For some homeowners, selling will absolutely remain the better choice. For others, however, the question may have changed from “Do I have to sell my house before I buy another one?” to something much more interesting:
“What if I kept both?”
Theresa Grant is a real estate broker and columnist covering Lake Arrowhead, Crestline, Running Springs, and the surrounding mountain communities. Reach her at (909) 442-1345 visit www.HomesInLakeArrowhead.com, and follow her on social media @TheresaGrantRealtor. Theresa is a Broker Associate with REAL Broker Technologies. DRE#01202881.
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