Home Buying in 22204>Question Details

Shannon, Home Buyer in Arlington, VA

What is the deal with rental income and buying a new home?

Asked by Shannon, Arlington, VA Sat Mar 16, 2013

We own a condo in Arlington Village and would like to rent it out and buy something bigger. Our mortgage broker told us we do not qualify to use the rental income at this point. What should we do? Thanks. Shannon

Help the community by answering this question:


My Compadre John below has it right, but if you would like further clarification on the subject, please click on the link below. This should surely clear up any questions you may have and maybe give you some tips on what to do or what to avoid.

Best of Luck!

Web Reference: http://www.AFN-Loans.com
0 votes Thank Flag Link Sun May 5, 2013
Hi Shannon,

Adam laid out the requirements fairly well. This is know as the buy & bail guidelines and they apply to any lender doing Fannie Mae or Freddie Mac backed mortgages.

The one thing Adam really missed the mark on is this part of his statement:

* If your current property has no Equity then i will recommend you to first try to refinance and take advantage of the low interest rate we are offering , therefore when we calculate your DTI , you will be able to qualify for both mortgages (Current & new mortgage).

He's advocating a refinance but here's the problem. You would have to refinance as a non owner occupied or rental property because you're going in with the intention of renting this home out . You will sign an occupancy affidavit certifying that you will occupy the home as your primary residence for at least 1 yr. In order to refinance into an investment property loan, you'll need at least 25% equity so if you have enough equity to refinance the correct way without committing mortgage fraud, you would have enough equity to use the rental income for qualifying on the new home.

The FHA guidelines allow lenders to use rental income for qualifying without the equity & history requirements in cases where the borrower is relocating outside of normal commuting distances for work but it doesn't sound like this is case for you so your only hope is qualifying with both mortgage payments.
0 votes Thank Flag Link Mon Mar 18, 2013
Hi John,
Thank you so much for following up on Adam's answer. This really helps clear things up, and gives us a lot to think about. Thank you also for the website to educate ourselves a bit more. I am so glad I discovered this website...getting great advice and answers!
Flag Mon Mar 18, 2013

I would recommend talking to a few different lenders, esp ones not a big banks, since sometimes they have more flexibility in the types of loans and criteria they can offer.

Good luck!
0 votes Thank Flag Link Sat Mar 16, 2013
Shannon,I cant speak on behalf of your mortgage lender to explain why they can't use your property as a rental unit but i am happy to explain how we calculate rental income to qualify our borrower's.

There are 2 options available for us when it comes to rental income:

Option# 1
If the property is listed on your last 2 years tax returns as a rental property on Schedule H, then we use this income and we factor in 75% only of the income receive to add to your household income, If you also have rental income depreciation, we add the depreciation amount towards the rental income to qualify you.

Option#2 (Your case)
If the property is currently a primary resident however it will be converted to a rental property, then you send out an appraisal to determine the current market value of your home (Also you may consider asking a realtor to do CMA to get a feedback of your home value), if the appraisal comes back with a value that is greater then your current mortgage loan amount by 25% then we should be able to consider your current property as a rental property income towards your DTI (Debt to Income).

* If your current property has no Equity then i will recommend you to first try to refinance and take advantage of the low interest rate we are offering , therefore when we calculate your DTI , you will be able to qualify for both mortgages (Current & new mortgage).

*If this is not an option, you might consider Jamie's suggestion and try to sell your property since we really have a very low inventory in Arlington and you may get what you looking for as an investment.

If you need a second look on the mortgage application that you had submitted to the other lender, i will be more then happy to do so. Also if you need to look over the refinance options that may be available for you, i can help.

Our office is located on 4100 N Fairfax Dr# 301, Arlington, VA 22203, i can schedule you to come in or we can speak over the phone as well.

In mean time, please let me know if you have any other questions.

Adam Elkassar
Vice President, NMLS# 1033582
George Mason Mortgage
Follow me on Facebook: http://www.facebook.com/adamm.elkassar
0 votes Thank Flag Link Sat Mar 16, 2013
Hi Shannon,

You may want to speak with a different lender. I know that they have tightened restrictions and in some cases you have to have enough income to qualify to pay both mortgages. How long have you lived in the property? Are there any HOA restrictions that prohibit you from renting until you have lived in the property for a minimum amount of time? I have two great lenders as part of my team that I would be happy to refer you to. Some lenders have the ability to be more creative with the way they structure a loan.

This is a great move-up market so you may want to consider selling your current condo as there is a shortage of properties under $500,000 and you still have a chance of getting a good price on a property over $500,000.

Feel free to contact me with any other questions!


Jamie Lee DeSimone
Realtor | Residential Property Enthusiast | Cat Wrangler
Keller Williams Capital Properties - Fairfax
Cell: 703-517-5608
Find me on facebook: http://www.facebook.com/vahomesbyjamie
0 votes Thank Flag Link Sat Mar 16, 2013
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