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How does leasing my existing home impact me getting another mortgage for a new home?

I moved in the past 6 months out of state (FL), where I leased my existing home.  Due to the depressed real estate market in the area, my lease income is only $500/m less then my mortgage payment on the home.  I have build up a cash reserve for repairs and the periods between tenants.

Now, I currently leasing a home in Georgia, but honestly am not happy about how restrictive the agreement is on doing things like adding fans, fixing little things around the house (don't even ask why the leasing company will not do these things).  So I am looking to buy a home in the same area so my kids can continue to attend the same school until they graduate over the next 5 years.

My question is, what sort of hassle am I going to be in for when I go looking for a mortgage on a home purchase?

Jim
  • June 25 2014 - Suwanee
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Answers (4)

A few factors

The rent payment

How long is the lease on the rental?

You must have at least 6 months of reserve monthly payments for your rental property and your new mortgage in your verifiable bank account in your name

Why are you moving?  Do you need a larger home? How far away is the new home? 

Note:  You cannot keep buying owner occupied homes and then renting them out.  There will be a limit on doing so because that original mortgage application was taken out as an owner occupied.  Investment properties have more risk and high loan qualifiers.  FYI

Lots to consider



  • November 28 2014
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Barb,

Thanks for the quick responses.  Should of noted that my current lease in Georgia runs thru June 2015.  So I will have my 2014 tax return in hand when I apply for a mortgage. 

Hamp,

Yeah we could of covered both the mortgage and lease payments without the rental income, but I was not too happy about my home sitting empty, waiting to sell in a down market.  So I figured I might as well offset some of the mortgage cost by leasing the house.  Thanks for the calculation, looks like my left over income will be substantially more than what I expect a 2nd house payment would be.

Jim
  • June 26 2014
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Once you file tax returns for 2014, you should have no problem with a lender using the rental income to offset the mortgage and other property expenses. Maybe it won't be a complete offset (wash), but it's is certainly better than qualifying for both mortgages. If you want to purchase sooner, the general rule of thumb is that if a primary residence is vacated and converted to rental, you must have 30% equity in the home you are converting - in order to use any rental income when you have not filed taxes reporting it as a rental for 12 months. Otherwise, you must qualify using both property expenses.
  • June 25 2014
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My question is, what sort of hassle am I going to be in for when I go looking for a mortgage on a home purchase?

There will be some hassles. You'll likely have to qualify carrying both total payments. You say you've built cash reserves, so you must make more than you spend, at least.

Take your gross annual income, divide by 12, multiply that result by .45, and subtract your leased-out house payment, subtract any credit card payments, car payments, loan payments, and leases, and what is left is what your maximum new house payment could be. If that is over $1250, or so, you may be able to buy another house that will suit you.
  • June 25 2014
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