Buy 2nd home as primary residence while renting out current home

[Mike Sanz]

Hey Everyone,

I'd like to get some of your advice on strategies for purchasing our second home as a primary residence while renting out our current home. 

My wife and I live in Hawaii in our first home that we bought in 2013. We used my $0 down VA loan for the purchase. It's a 30 year loan at 3.25%.We now have about $175K in equity. Current loan balance $615K with market value right around $790K.

We are considering moving back to our home state of NJ and we want to rent our current home in Hawaii and purchase another home in NJ for us to use as our primary residence. We would be using a property manager to manage the Hawaii house for us since we would be so far away. The rent we could get on our current home would be enough to cover the mortgage and property manager with maybe a little extra (~$100/mo?).

Our monthly debts: 

- $3150 for mortgage (which will be paid by tenants)
- $1200 for credit cards minimum payment
- $350 for student loans
- $250 for vehicle loan

We both work full time jobs. Together, our income now is $190K/year but will change to about $150K/year if we moved to NJ. We don't have any savings except for retirement accounts. 

So my question is: what would be the best way to go about buying a second house to live in while renting out our current home?

Here's the options that I can think of: 

1) Refinance current VA loan into a conventional mortgage so that we can use our $0 down VA loan again to purchase the second home.

2) Take out an equity loan from current VA loan to use as the down payment. Although I don't know if there is enough equity to take out.

3) Leave the current VA loan as is and save enough money to use as the down payment. I'm assuming we'd need 20% down on the new home. We can't use FHA since we already have a VA loan, right? If it's 20% we need to save, that could take a long time.

I'm unsure if lenders will allow us to use the rental income to offset our monthly debts in order to get approved for the new loan. Will they exclude the current monthly mortgage as a debt if the rental income is enough to pay it? Or will they still count that first mortgage against us in terms of our debt-to-income ratio? Does anyone have any experience with this type of situation? I know I need to talk with a lender to see if we qualify but I wanted to get some feedback before doing that.

I guess there's two main issues I'm asking about: (1) how to get money for the down payment of the new loan and (2) if our debt-to-income will qualify us for the new loan. 

Thanks!