Your loan officer would run FHA TOTAL (FHA's automated underwriting) with your numbers and if an "Approve/Eligible" response comes back then that means those debt ratios can qualify. Some lenders have "overlay" guidelines on top of those debt ratios though, which would limit the debt ratio that they would approve, so even though FHA TOTAL may approve a 56.99% total debt ratio the overlay guidelines may prohibit anything higher than 50% or 55%, etc. Best plan of attack is to go over your income with a loan officer so your debt to income ratios can be calculated without the rental income.
The guidelines that Bill posted are what all FHA lenders need to follow when they are trying to count rental income from your departing residence.
Shane Milne | Lending in all 50 states | NMLS #81195
Maybe another lender knows of a trick I do not, but FHA is pretty clear on this. Due to others before you using this situation to "buy and bail", which the FHA and all other lenders consider an "unscrupulous practice", the ONLY times when you can use rental income from a vacated primary residence turned into a rental is if you are being relocated or HAVE AT LEAST 25% EQUITY IN THE VACATED PROPERTY. Since others are indicating otherwise, I have provided portions of the specific MORTGAGEE LETTER below (edited for brevity):
September 19, 2008
MORTGAGEE LETTER 2008-25
Existing Homes to Rentalsâ€”Underwriting Instructions
Through this Mortgagee Letter, the FHA takes steps to immediately respond to an unscrupulous practice arising in the housing mortgage market that poses a risk to FHA, FHA-approved lenders, and consequently to FHAâ€™s ability to help new homeowners.
Consequently, beginning with case number assignments on or after this date and until further notice, the underwriting analysis may not consider any rental income from the property being vacated except under circumstances described in this Mortgagee Letter.
â€¢Sufficient Equity in Vacated Property: The homebuyer has a loan-to-value ratio of 75 percent or less, as determined by either a current (no more than six months old) residential appraisal or by comparing the unpaid principal balance to the original sales price of the property.
The guidance in this Mortgagee Letter applies solely to a principal residence being vacated in favor of another principal residence. This Mortgagee Letter is not applicable to existing rental properties disclosed on the loan application and confirmed by tax returns (Schedule E of form IRS 1040).
Sorry. Are there any lenders out there which have seen real-life examples overcome this Mortgagee Letter?
Bill Parker, Loan Officer
AZ Lic# 09011570
CPA--Licensed, no longer practicing
GenCor Mortgage Inc.
15730 N. 83rd Way, Suite 103
Scottsdale, AZ 85260
(O) 480-525-8496, EXT 743; (M) 602-565-3646; (F) 480-436-5226
MISSION STATEMENT: To create an unbelievably enjoyable experience for my clients, while guiding them through the most important financial transactions of their personal lives. My clients know me as their Mortgage Lender for Life. I truly appreciate your referrals.
If you think it's expensive to hire a professional to do the job, wait until you hire an amateur.
Red Adair, Oil well firefighter
Should talk a little more and then can advise which lender would be best.
We can also offset a percentage of the current home with rental income