Financing second home while renting first

[Richard Low]

I apologize if these questions have been answered elsewhere, I've read through pages of search results and can't find anything. This forum is a fantastic resource and I appreciate the time and experience of those who post here.

I'm in my second year of dental school in Arizona with the Army paying for it. My wife and I bought a house at the bottom of the market last year as our primary residence. When I'm done dental school, the Army will send me to an assignment for 4 years as a repayment for my schooling. At this point we have to decide if we're going to rent or sell our home and whether we should buy or rent at our first duty station. After four years in the Army I plan on getting out and starting my own practice, but we're not sure where.

My first few questions are logistical:

If we were to rent out our home while in the military, is the insurance the only change we need to make to our current mortgage?

Related to the first question, if we were to buy while in the Army, what would be the best way to finance? Since we'd be owner-occupants, could we qualify for another conventional loan as long as our DTI ratio is good? Or does renting out the first property disqualify us and make us resort to an investor mortgage? I think I'll be able to qualify for a VA loan as soon as I'm active duty.

To complicate things further, if we were to purchase a property with a rent-able basement or some other multi-unit situation where we were living in one unit, would this require different financing even though we were owner-occupants of part of the property?

I don't know if this helps, but our PITI is $755.32, our loan is for $125k and two comps down the street sold in the last two months for $180 and $190. When I'm a dentist for the Army I'll be making around 90k if I live off base. I also have about 15k in undergraduate student loans.

I've got more questions about whether or not renting is a good idea (applying the %50 rule to our property, etc.) or whether selling and using the cash to finance other properties would be better, but I think this isn't the right sub-forum for those questions.

[Jon Holdman]

Keep in mind that if you buy quickly after starting to rent your old house you will need to be able to qualify for both loans without considering the rent. You will need two years history as a landlord before you can start counting the rental income to qualify. Lenders are worried about people buying a new house and claiming they're renting the old one. Only to turn around and let the old one fall into foreclosure. So, they want to be sure you qualify for both loans.