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Rent Current Condo; Purchase a House


Glacier
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I currently am in a Condo, and have 11 years left on 15 year mortgage.  Probably about $140k in equity at this point.  The complex I live in finally has the rental rate down to the max allowed by our village and our by-laws, which means I may have the option to rent out my condo.  

 

If I were to rent it out, I would then like to purchase a new residence.  I have always heard in order to count rental income when calculating DTI, the property must have been rented for the past 2 years.  One broker I spoke with, who I am not sure I trust, stated, that since I would be renting out my current residence, I could count the expected income when calculating DTI.  


So my question is, would I have to rent my condo out for 2 years prior to counting the rental income as income?  (It would be positive cash flow).  

 

Thanks in advance.  

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Do you know which type of financing you are qualifying for?   I am going to assume conventional financing, which the most popular forms are Fannie Mae & Freddie Mac (these are the 30-year fixed rates you see advertised/mentioned on the radio, in print, etc.).

 

Fannie Mae & Freddie Mac guidelines state that if you have less than 1 year history then you can still use rental income from a property you are converting from a primary residence to an investment property, but you can only offset it's housing payment rather than add additional rental income.

 

I'm not sure of your exact numbers, but I'll give you a hypothetical.   

 

Let's say your total housing payment (PITI + HOA dues) on the condo is $1,500/mo and you are going to rent it out for $2,200/mo.  Note:  when the rental income hasn't been claimed on your tax return (like the situation where you are renting out your primary residence while simultaneously buying a new home), then the underwriting guidelines only allow you to use 75% of the lease agreement when it comes to calculating the usable portion of the rental income.  75% of $2,100 is $1,650.   But since you don't have a 1 year history, then underwriting will only allow $1,500/mo if the rental income since that offsets the housing payment and doesn't add any qualifying income.  If you had at least a 1 year history then you could get the full $1,650/mo and not only offset the $1,500/mo housing payment but will also add an additional $150/mo of rental income to your qualifying income.

 

Let me know if this helps or if you need any further clarification.

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