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Can I claim half my condo was rented when applying for a loan to buy a house and rent the old one?

I bought a condo about 3 years ago for $214K with a loan of $203k from the bank.  I now owe $195K, but the value has depreciated to $192K.  I don't want to sell, obviously, but my finance' and I are ready to buy a house together and start a family.  My plan when I bought the condo had always been to rent it out when I bought a house.

However, I was recently informed of the restriction on claiming rent money as income when applying for a new loan - I need 25% equity or two years proof of renting out the condo.  I talked to my loan officer and asked if there were ANY companies that don't follow that policy, but I didn't get a stright answer - sounded like an implied "no," but he didn't actually SAY no....  I do NOT have anywhere close to 25% equity yet and the condo is listed currently as a primary residence.

I have been renting half the condo out for a little over 2 years now to a friend.  My question is, would that count if I could show tax records and the lease agreement?  Or does it have to be rented out in full?  I already have a family that wants to move in to the condo and rent it in full when we leave and can have a lease signed for that as well.

Thank you
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March 20 2012 - Ellicott City
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Answers (3)

Profile picture for JAKEBAXTER
In order to use a rental schedule you would have to have the equity in the home.  The reason you use is rent schedule is to show how much possible future rents received (based on the avg rent in the area).  The rents received up until this point would be considered border income and I do not know of any lenders that are willing to accept this as income. 
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March 20 2012
It sounds like your lender was trying to avoid telling you what you don't want to hear.  The fact is no loan program that I'm aware of will consider any rental income from a home (not just a condo) that you are vacating to purchase another owner-occupied home.  I understand that you actually did rent out "part of" the condo, but unless you reported the rental income on your tax return as rental income no one will count the rental income.  If you DID declare the rental income and pay taxes on it you might be able to use the rental income; I would want to run that past an underwriter if you were my client – and my guess is some lenders will consider the rental income and some won't.
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March 20 2012
I have yet to find a bank who will count the rental income unless you have the equity.  They want you to qualify for both the new mortgage and the old (condo) mortgage in full in case your tenant doesn't pay rent.  It is very conservative (and possibly extreme) approach, but the banks were hit hard. 

Sorry, wish I could offer you better advice. 
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March 20 2012
 
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Can I claim half my condo was rented when applying for a loan to buy a house and rent the old one?
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March 20 2012 | 3 answers
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