This Blog will answer questions regarding real estate and mortgage financing. One question will be selected from the most frequently asked questions of the week regarding real estate and mortgage financing.
Are there any guidelines for converting my principal residence into a rental property? Buyers looking to move up or who are unable to sell their property at a gain or who want to retain their property for future personal use often consider turning their current residence into rental property. For loan qualification purposes, if there is a pending sale on your current principal residence, then both the current and the proposed mortgage payments must be used to qualify you for the new transaction. Additionaly, most lenders will require at least 6 months pincipal, interest, taxes & insurance (PITI) reserves for both properties. The lender may waive the 6 months requirements and finance the property with 2 months PITI reserves if you have at least 30% equity in the current home.
If there is documented equity of at least 30% in the existing property, you may qualify using 75% of the rental icome to offset the mortgage payment. The rental income must be documented with: a copy of the fully executed lease agreement; and the receipt of a security deposit from the tenant and deposit into your account. If the 30 percent equity in the property cannot be documented, rental income may not be used to offset the mortgage payment. Both the current and the proposed mortgage payments must be used to qualify for the new transaction and 6 months of PITI reserves for both properties are required. Make sure to check with your lender for their specific guidelines.
7. Rental Market - What is the rental market in your area. Will the rental income cover your mortgage and related expenses. Get the numbers for renting and for selling so you can compare.