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Buying a New Home and Renting Yours ... Not So Fast

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Planning to buy a new home and rent yours? It may make sense because you are unable to sell for a variety of reasons:


  • Can't get what you want/need for your current home
  • Need a larger home
  • Need a smaller home
  • Lifestyle Changes - condo to single-family, single family to condo
  • Need/want to move for employment
  • Need/want to move to assist elderly family

All of the above aren't really a problem if you own your current home free & clear and are planning to pay cash for your new purchase. However, if you have a mortgage on your current home and plan to get a mortgage on your new home and rent the old one, you may be in for a SURPRISE.

In these cases, qualifying for a new mortgage can be an issue for a buyer. Past lending guidelines allowed borrowers to utilize the rental income they would be receiving from their current home to qualify for the new mortgage. Due to the number of home owners walking away from under-water homes (houses that are worth less than the mortgage balance), guidelines have become much more stringent in this situation.

Recent guideline changes now require lenders to hold both mortgage payments (your current home and the new home) against the borrower's debt-to-income ratio without the benefit of the rental income. The only exception to this rule are borrowers that can demonstrate a prior history of having and maintaining investment property. To qualify the borrower must show rental property on Schedule E of their 1040 personal tax return in at least one of the prior two years. For many buyers, this can be a huge hurdle to overcome.

As a Florida Residential Investment Property Specialist, I've seen a growing trend of buyers receiving Pre-Approvals with the above circumstances, only to be turned down later for high debt-to-income ratios. Just as in sports, the best offense is a great defense.

DON'T get pre-approved at your bank where your Loan Officer was on the teller line last week.

DO get pre-approved by a Professional Home Loan Specialist with experience and commitment to your best interest.

If you are interested in learning more about the opportunities and challenges of buying and financing Florida residential investment property, you can request my new FREE Report, "Guide to Florida Investor Mortgages".

Harvey Collier

Florida Residential Investment Mortgage Specialist



Cynthia Larsen
Cotati, CA
Independent Broker In Sonoma County, CA

I had buyers who did just that in July of this year. The rented their small home and bought a bigger home in a nearby town. Both properties have mortgages, different lenders. No prior investment property. Maybe we just squeezed in under the wire?

Nov 04, 2011 07:28 AM