Rent your home and buy a new one? Not so fast.

Rent your old home and Buy a New Home?

In the past, if you wanted to buy a new home, it was simple.  You put your present home on the market and boom... it went under contract quickly, you sell it and buy your new home the same day.  Things are much different today.  Selling your home in this market is difficult if not impossible.  Everyone is waiting to buy at the bottom and who knows if it's here or not. 

So you decide to buy a new home and rent out your old home until values come back.  Not so fast.  See what Fannie Mae, Freddie Mac and HUD have to say about that. 

FHA rule:

Lenders may not consider rental income on borrower's current residence to qualify unless:

• Relocation: If a homebuyer is being transferred by a current employer or relocating to be near a new employer, a fully executed lease and copy of security deposit check and/or first months rent payment will be acceptable.
• Sufficient equity in prior residence:  If the current mortgage(s) owed total(s) less than 75% of the current value of the home being vacated, then rental income and copy of security deposit or first months rent will be accepted in qualifying.  The current value is determined by an appraisal (6 months old or less) or by the original purchase price of the property. 
• In both instances, the rental income used to qualify must be reduced by the appropriate vacancy factor (typically 25%).

 Conventional Rule:

Lenders may use 75% of the gross rental income from property being vacated if all of the following are met:

• Sufficient equity: The total mortgage(s) owed on the property are less than 70% of the current value of the home being vacated as determined by a current appraisal on the property
• Copy of the fully executed lease (for at least one year).
• Copy of security deposit check and proof it cleared borrowers account.
• Six months PITI (principal, interest, taxes, insurance) reserves for each property required.
• The current residence can't have been listed in last 90 days.
• The current residence must have been owned for at least one year.

If there is evidence of a job transfer, the last two conditions don't have to be met.

Wondering why these new rules have been put in place?

Apparently, some homebuyers in these types of transactions have purchased their new homes and either provided false documents, such as leases that weren't real or stopped paying for the old home after they've bought their new one. 

For more information, visit First Portland Mortgage on the web at www.firstportland.com.