Home Buying in Alexandria>Question Details

Mike, Other/Just Looking in Alexandria, VA

Can you get a mortgage that factors in rental income from your previous home?

Asked by Mike, Alexandria, VA Tue Dec 9, 2008

I am thinking for renting my current home (good area for rentals, and right now would get a low sale price) and buying a house where I want to move. I just don't know how the loan would work out. Would it help if I got a property management company to estimate how much I could rent it for?

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The way that current lending rules are stated is basically as such:
* You must have a 25% -30% equity stake in your current home if you are going to make your primary home a rental for purposes of qualifying for a mortgage
* You will be allowed to use 75% of the rental income (lease agreement in your case) to offset the mortgage specifically. This will help with you rdebt ratios.
* The value of your current home will probably need to be justified with a full appraisal. Possibly an underwriter could use a market valuation model if your mortgage is very minimal.

The reason for these new rules is to prevent a process called "buy and bail" whereby a buyer gets a fake lease agreement to qualify and owe equal to or more than the home is worth on their mortgage. After they buy their new home, they let the prior home fall into foreclosure.

I know it sounds like a stretch, but it is more common than you think.
Call me if you have questions.
Luke Allison
Flagstar Bank
0 votes Thank Flag Link Tue Dec 9, 2008
There was a signficant change in the lending laws this fall. Depending on the type of loan you want to get many lenders want to you to prove that you can make payments on both properties without rental income. The reason? To many buyers who are upside down on their current home, see a good deal down the street, get a loan for the new lower priced home and then walk away from their current home. They had a straw renter and lease to show that the first home had rental income coming in. Buy and Bail is now dead!

First check with a mortgage professional to see what loan programs you qualify for and then if you are staying in the area any Realtor can provide you with the comps for your current home as a rental property.
Web Reference: http://cindyjoneshomes.com
0 votes Thank Flag Link Tue Dec 9, 2008

Ask a real estate agent for comps. They'll be able to tell you the going rental rate.

Do you have a lender that you regularly work with? Ask them about their programs, and they'll tell you exactly what you need to do. If you don't have a lender, I can recommend a few great ones in our area. Let me know if I can help out further.

Web Reference: http://www.TinyVarner.com
0 votes Thank Flag Link Tue Dec 9, 2008

Just had a client get an approval to purchase a home and one of the stipulations is that he has to have a lease on his current home. The lender will be able to tell you the exact requirements of the lease -- but, in some instances it can be done. If you need a lender referral, I have a great one and would be happy to give you his number. It's worth checking it out and see if it could work for you. As you know, every case is different. Feel free to contact me - 703-509-4199. Carol
Web Reference: http://www.CarolHooks.com
0 votes Thank Flag Link Tue Dec 9, 2008
You need a real estate agent to work with you comp rental amount, list in MLS, represent you thru executed lease agreement. Contact a mortgage broker many lenders are not wanting to do another home purchase with rental properties, many instances the rental properties is home going to be foreclosed on. It all depends on your credit score, debt ratio, employment history, financial records. GREAT IDEA to lease you earn additonal income per year and tax write off however up to lender issue a 2nd mortgage.
Web Reference: http://www.lynn911.com
0 votes Thank Flag Link Tue Dec 9, 2008
Mike...all loans are different, but generally your new lender will count 75% of your rental price as income. Most will require a signed lease before you close on your new house. The best way to approach this is to go talk to a lender about your new loan, and see what they require for the loan you plan to get.
Web Reference: http://www.ourfairfax.com
0 votes Thank Flag Link Tue Dec 9, 2008
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