This is the OP "answering" my own question with additional details - I don't see another way to post a general response. Please let me know if there's a better way.
Wow, thanks for the thoughtful answers! The consensus seems to be we should keep the rental.
I was probably too brief in my OP - especially as I did leave out the reasons we are looking to buy our new house soon. We are currently living in a very small cabin I jointly own with my siblings - need to get out of here! We also want to relocate to the Western Slope as our permanent/long-term home. We have two girls just beginning elem. school and want to get them "rooted", as we've moved twice in the last few years. So, we would like to buy/move sometime in the June/July timeframe - August at the latest.
I was originally almost certain I wanted to sell the rental house, but now am almost as certain I want to do the opposite. I did talk to a financial planner (through USAA), who started out encouraging us to hold onto the rental, but ended up saying either choice was a reasonable one. He was not a "mortgage guy", so he couldn't/didn't answer the distinction between 1 and 2 in my original post.
So, it sounds like if we can swing the deal on the new house without selling the rental, we should do that, even if we have to pay PMI. I really HATE being in debt, and would like to pay off the student loans ASAP, but I guess I can suck it up and pay that high-interest debt for a few years if it works out better in the long run.
Again, thanks for the responses, and let me know if the additional data makes any difference in your opinions.... more
Lenders are in the business of making loans. 20-30% of the want-to-be borrowers/homeowners like yourself, now and in the near future will be making loan applications. I've been in the business over 31 years and am always amazed how quickly banks adjust after an economic downturns to make loans again. Believe me they will not be turning their backs on 20-30% of their market share. Instead they will create new lending products to fit the public's needs caused by past financial challenges.
I know several very skilled lenders who can quickly assess your situation and answer your questions very quickly. Give me a call and let's help you get started finding your new home. Ed Quinn 303-807-7688... more