Renting Out Current Home and Financing a New One

[Chris Roberts]

I'm looking to rent out my current home and finance a new primary residence. Can a lender use future rental income determined by an appraisal to potentially cover the previous mortgage?

I have heard two different things:

1) No, you must have a signed lease with security deposit, etc.

2) Yes, you will get a rent appraisal and that will be used to determine future rental income

[Zack Karp]

@Chris Roberts

The short answer, no.

For using rental income on the property you already own and are vacating, you cannot use an appraisal for the amount of rental income, you would need to have a signed lease prior to closing, and you use 75% of the gross rent, which will wash against the mortgage payment. Proof of receipt of rental income and/or security deposit is NOT a Fannie Mae or Freddie Mac requirement, that is a lender overlay if they are asking for receipt of income/security deposit.

For using rental income on an investment property you are purchasing, that is where you can use the appraisal to determine market rent, which can be used in lieu of a lease for a vacant property (since you don't yet own the property, and can't control whether it's currently rented or not).

Hope that helps explain. Best of luck!