Reader Question: Converting Current Home to Rental

I enjoy receiving email like this from my readers:

I currently own a condo as my primary residence and am getting married soon.  The mortgage and title is in my name only.  We will soon like to look at moving to a bigger place and would apply for a mortgage on our new primary residence together while still keeping the condo to rent out.  How will this situation affect getting approved for the new loan?  Are there any changes that will need to be made to my current condo mortgage since it will no longer be my primary residence?  Thanks in advance for your help! 

Unless you're planning on refinancing your existing condo, there shouldn't be any changes that you need to make that mortgage because you are renting it out.  If you are currently refinancing or planning to refinance the condo, you should let your mortgage originator know of your intentions to use the property as an investment property.  On a side note, you may also want to check with your Home Owners Association or condominium bylaws to make sure that investment properties are allowed.

Qualifying for the new home will be impacted by the type of financing you select and the amount of home equity you have currently in the condo.  If you have less than 30% home equity, you'll need 6 months reserves for all of your mortgages (your current residence/future rental and the new home) if you're considering conventional financing or you must qualify with both mortgage payments.  FHA does not have this guideline at this time. 

In addition, if you do not have a documented current two year history as a landlord, you may find that the entire mortgage payment (including the home owners association fees) may be factored into your debt with no credit for any rental income you receive on the new home.

Lenders are looking for extra reserves and making sure that people who are leaving their current homes have enough "skin in the game" (equity) so that they're less likely to walk away from their former residence once they've closed on their new home.

By the way, if the home you're buying with your future bride is located in Washington state, I'm happy to help you with your mortgage!