Editor’s note: This post has been updated to reflect Fannie Mae’s September 2026 Selling Guide update.
One of the most common scenarios I work through with move‑up buyers in Washington State is this: you want to buy your next home, but you’re considering keeping your current home as a rental rather than selling it. Maybe you’ve built significant equity and don’t want to give it up. Maybe the rental income would help offset your new mortgage payment. Maybe you simply love the neighborhood and want to hold onto the property long‑term.
Whatever the reason, converting your existing home to a rental while buying a new one is entirely doable — but the mortgage guidelines are more complex than most buyers expect, and they just changed again for conventional loans. The rules differ significantly depending on which loan program you’re using for the new home, how the lender documents your expected rental income, and how much property management experience you have.
Here’s what you need to know.
Key considerations for converting your home to a rental
When you buy a new home while keeping your existing one, your lender needs to qualify you for both mortgage payments simultaneously. How much of the expected rental income you can actually use — and how it must be documented — now depends heavily on which loan program you’re using.
This is why talking to your loan officer before you start house hunting is critical. The decision to keep or sell your existing home can dramatically change what you qualify for on the new one.
Program‑by‑program guidelines
Conventional — Fannie Mae
Fannie Mae updated this guideline effective September 2, 2026, and the change is significant: lease agreements are no longer accepted for a departing residence under any circumstance. This is a full reversal from the prior lease‑based approach.
- The borrower must still qualify for both mortgage payments — the new home and the departure property
- To use any rental income from the departure property in qualifying, the lender must first document a current housing payment history for the borrower
- Qualifying rental income can no longer be established with a signed lease. Instead, it must come from one of: a full appraisal report showing market rents, a Single‑Family Comparable Rent Schedule (Form 1007), or a market analysis using tools like Zillow, Redfin, or MLS — with a minimum of three comparable rental properties from the same market area
- The lender calculates adjusted net rental income by taking 75% of the market‑rent figure and subtracting the departure property’s full PITIA
- If that number is positive, it can only be used to offset the departure property’s own PITIA — it is never added to your qualifying income the way subject‑property rental income can be
- If that number is negative, the shortfall counts against your debt‑to‑income ratio
- If you have less than 12 months of documented property management experience, the lender must verify an additional six months of PITIA reserves specifically for the departure property, on top of any standard multiple‑financed‑property reserve requirement
- There is no minimum equity requirement in the departure property under standard Fannie Mae guidelines
In practice, this means the timing pressure buyers used to feel around “do I have a signed lease yet?” has shifted to a different question: does the appraisal or market data support enough rent to make the math work, and do you have the reserves to back it up if you’re a first‑time landlord?
Conventional — Freddie Mac
Freddie Mac has historically allowed a signed lease to support departure‑property rental income, unlike Fannie Mae’s new approach:
- Borrower must qualify for both mortgage payments
- Rental income from the departure property can be used with a signed lease in place
- Reserve requirements are determined by Freddie Mac’s automated underwriting system — findings vary by scenario
- No minimum equity requirement in the departure property under standard guidelines
FHA
FHA has more restrictive guidelines for this scenario than conventional — which is a reversal from how most people think about FHA vs. conventional flexibility:
- Rental income from the departure property can only be used to offset the mortgage payment if the borrower is relocating due to employment and the new home is more than 100 miles from the current primary residence
- If the relocation requirement is not met, the full departure property mortgage payment must be counted as a liability and rental income cannot be used
- The departure property must have at least 25% equity — verified by appraisal or automated valuation — for the rental income offset to be allowed
- This makes FHA a less favorable option for most buyers who want to convert their home to a rental while buying locally
VA
VA guidelines allow eligible veterans to convert their existing home to a rental and purchase a new primary residence using their remaining VA entitlement — sometimes called Bonus Entitlement or second‑tier entitlement.
Key points for this scenario:
- The new home must be the veteran’s primary residence
- VA calculates remaining entitlement based on the county loan limit where the new home is located, minus the entitlement already tied up in the departing residence
- If remaining entitlement covers 25% of the new loan amount, no down payment is required
- If there is an entitlement gap, a down payment may be required to make up the difference
- Rental income from the departure property may only be used to offset that property’s mortgage payment — it cannot be counted as positive qualifying income unless the borrower has a documented two‑year history of managing rental properties on their tax returns
- Three months of PITI reserves are required
Because entitlement calculations vary based on county loan limits and how much entitlement is currently in use, veterans in this scenario should work with a VA‑experienced loan officer to understand their specific position before making any decisions.
USDA
USDA loans are not an option for this scenario. USDA only permits borrowers to own one property, so if you’re retaining your current home you would not be eligible for USDA financing on the new purchase.
Quick reference: Departure property rental income by program
| Program | Rental income usable? | Key requirements |
|---|---|---|
| Fannie Mae | Yes — to offset payment only | No lease allowed. Requires appraisal, Form 1007, or market‑data comps (min. 3); 75% of market rent minus PITIA; 6 months extra reserves if under 12 months landlord experience |
| Freddie Mac | Yes — to offset payment | Signed lease still permitted; reserves per AUS |
| FHA | Only if relocating 100+ miles | 25% equity required; employment relocation |
| VA | Only to offset payment | New home must be primary residence; remaining Bonus Entitlement determines loan amount; down payment may be required if entitlement gap; 3 months PITI reserves |
| USDA | Not available | Cannot own another property |
Documenting rental income for the departure property
This section used to be about timing a signed lease before your mortgage application — that’s still true for Freddie Mac and VA, but Fannie Mae has moved away from leases entirely for departure properties.
If you’re financing with Fannie Mae
You no longer need a tenant lined up with a signed lease before closing. Instead, your lender will document expected market rent through an appraisal, a comparable rent schedule, or rental comps pulled from sites like Zillow or Redfin (a minimum of three comparables is required). That market rent figure gets reduced by 25% for vacancy and expenses, then compared against the departure property’s full housing payment.
- If the adjusted rent covers the departure PITIA and then some, the excess simply offsets that payment — it does not become extra qualifying income for the new home
- If the adjusted rent doesn’t cover the departure PITIA, the shortfall counts against your DTI on the new loan
- Whether or not you have a tenant yet is no longer the deciding factor — the appraisal‑based or market‑data documentation is
If you’re financing with Freddie Mac or using VA entitlement
A signed lease is still the path here. A few practical points:
- The lease should be for at least 12 months
- The lender will review the lease for the rental amount, start date, and signatures from both parties
- The rental income used for qualifying is typically 75% of the gross rent — the 25% reduction accounts for vacancy and maintenance expenses
Read: How debt‑to‑income ratio works in Washington State
Reserves: What you need to have in the bank
Reserve requirements are one of the most commonly overlooked aspects of this scenario, and Fannie Mae’s update adds a new layer for first‑time landlords specifically.
- Primary residence: typically two months PITI
- Each additional financed property: typically two months PITI per property
- New for Fannie Mae: if you have less than 12 months of documented experience managing a rental property, add six months of PITIA reserves for the departure property specifically, on top of the above
For a first‑time landlord buying a new home and keeping one rental under Fannie Mae guidelines, this can mean well over six months of combined payments in verifiable liquid assets after closing — separate from your down payment and closing costs. This is a meaningfully higher bar than it was before the September 2026 update.
Acceptable reserve sources include checking and savings accounts, vested retirement accounts (at 60‑70% of value), and investment accounts. Gift funds cannot typically be used for reserves.
What about the occupancy question?
When you buy a new home intending to live in it as your primary residence, you are certifying on the loan documents that you will occupy the property within 60 days of closing. This is standard and straightforward.
What’s important to understand is that your existing home’s occupancy status also matters. If you originally purchased it as a primary residence, converting it to a rental is generally permitted — but the timing and documentation matter. Your lender will review whether your situation genuinely supports the conversion rather than flagging it as potential occupancy fraud.
Signs that support a legitimate conversion include a clear reason for the move (upgrading to a larger home, relocating within the area, family needs) and documentation consistent with someone who is genuinely moving. Under Fannie Mae’s current guidance, the appraisal or market‑rent documentation itself becomes part of that supporting record, in place of a lease.
Should you keep the home or sell it?
This is ultimately a financial and lifestyle decision — but the mortgage implications are worth factoring in. A few questions worth working through:
- Can you qualify for the new home while carrying the existing mortgage? If keeping the property makes qualifying difficult, selling may be the cleaner path — especially if proceeds from the sale would strengthen your down payment and reserve position on the new home.
- Will the rental income cover the full mortgage payment? If the rent doesn’t cover principal, interest, taxes, insurance, and maintenance, you’re subsidizing the rental — which may or may not be worth it depending on your long‑term equity goals.
- Have you considered a bridge loan? If you need the equity from your current home to buy the next one but want to keep the option of renting it open, a bridge loan may allow you to access that equity before selling — giving you time to decide whether to sell or retain the property.
Frequently asked questions
Do I still need a signed lease to use rental income from my departing home?
It depends on your loan program. For Fannie Mae loans, no — as of September 2026, lease agreements are no longer accepted for a departing residence at all. Instead, your lender documents expected rent through an appraisal, Form 1007, or market‑data comps. For Freddie Mac and VA loans, a signed lease is still the standard path.
Can rental income from my current home boost my qualifying income on the new home?
Generally, no. Under Fannie Mae, Freddie Mac, and VA guidelines, rental income from a departing residence can only offset that property’s own mortgage payment — it doesn’t get added to your income to help you qualify for more on the new home. The one exception is VA, where a documented two‑year landlord history can allow it to count as positive income.
How much equity do I need in my current home to convert it to a rental?
Fannie Mae and Freddie Mac don’t impose a minimum equity requirement for this scenario. FHA is the exception — it requires at least 25% equity in the departing residence before rental income can be used, and only if you’re relocating for employment more than 100 miles away.
What if I’ve never been a landlord before?
Under current Fannie Mae guidelines, if you have less than 12 months of documented property management experience, your lender must verify an additional six months of PITIA reserves for the departure property, on top of standard reserve requirements. This is new as of the September 2026 guideline update.
Can I use USDA financing if I’m keeping my current home as a rental?
No. USDA loans require that you not own another residential property, so keeping your current home rules out USDA financing for the new purchase.
Thinking about keeping your current home as a rental while buying your next?
I’ve been helping Washington State homeowners navigate this exact scenario for over 25 years. Let’s look at your specific situation — equity position, income, reserves, and goals — and figure out the right approach for your move.
Rhonda Porter · Licensed Mortgage Advisor · NMLS #121324 · Washington State
Last reviewed: September 2026
About Rhonda Porter
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