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Have you considered moving and keeping your current home as a rental property? If you are one of the many people who want to use this option as a way to expand your investment portfolio, then you want to read below for the latest Conventional guideline change!

Fannie Mae has updated its guidelines for departing residences, creating more flexibility for borrowers who want to convert their current primary residence into an investment property when purchasing their next home. One of the biggest changes involves how the expected rental income from the departing residence can be documented.

Under the updated guidance, a borrower does not need to have a tenant in place with a signed lease to establish the property's potential rental income. In fact, for a departing residence, Fannie Mae does not permit a lease agreement to be used to establish the rental income. Instead, the property's market rent can be supported through an appraisal with a Single-Family Comparable Rent Schedule (Form 1007) or other acceptable market-rent documentation.

Once the property's eligible market rent has been established, 75% of the gross monthly rent is generally used for qualifying purposes. The property's full payment, including principal, interest, taxes, insurance, and applicable association dues, is then subtracted from that amount.

For example, if a homeowner's current property could reasonably rent for $3,000 per month, $2,250 would generally be considered after applying Fannie Mae's 75% factor. That amount can then be compared against the existing property's monthly housing expense when determining the impact of the departing residence on the borrower's qualification to purchase a new primary residence.

This can open an important option for homeowners who have built equity in their current property and would prefer to keep it as a long-term investment rather than sell it to purchase their next home. Every borrower's situation is different, but these updated guidelines may make the "keep it and rent it" strategy worth exploring for more homeowners, particularly those who have a favorable interest rate on their existing mortgage, substantial equity, or a property located in a strong rental market.

If you are considering purchasing a new primary residence while keeping the current home as a rental, contact Reliant Mortgage Solutions. We can review the scenario and determine how the departing residence and potential rental income may factor into qualifying for the next purchase.

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