Selling your current house is not the only way to move.
Maybe you have a low mortgage rate you don’t want to give up. Perhaps your current home is in an area with strong rental demand. Or you may simply like the idea of keeping the property as a long-term investment while moving into a house that better fits your life now.
It may be possible to purchase a home without selling first, but qualifying for the next mortgage can look different once your current residence becomes a rental.
Your Current Mortgage Doesn’t Simply Disappear
Moving out does not change your responsibility for the mortgage on your existing house.
When you apply for financing on the new home, your lender needs to determine how the old property’s mortgage payment and expected rental income affect your overall financial picture.
This is where borrowers sometimes make an overly simple calculation: “My mortgage is $1,600, and I can rent the house for $1,800, so the property pays for itself.”
Mortgage underwriting does not necessarily work that way.
Lenders may account for vacancy, maintenance, and other expenses when determining how much rental income can be used for qualification. If the qualifying rental income does not fully offset the existing property’s housing expense, the remaining amount can affect how much you qualify to borrow for your next home.
A Future Tenant Can Change the Documentation
If you plan to rent the house as soon as you move, tell your lender early.
Depending on your loan program and circumstances, documentation such as a fully executed lease may be used to establish expected rental income. The lender may also need information supporting the property’s market rent or evidence that a new lease has actually gone into effect.
Your previous experience as a landlord can matter as well. Certain underwriting guidelines treat rental income differently when a borrower does not have an established history of managing rental property.
The important takeaway is that simply telling your lender what you expect to charge in rent may not be enough to use that entire amount for qualifying.
Don’t Set the Rent Based Only on Your Mortgage
Your existing mortgage payment may influence how much rent you hope to collect, but tenants don’t price homes based on what their landlords owe.
Look at comparable rentals in your area to get a realistic idea of what the property may command. If similar houses rent for $1,700 per month, having a $2,000 mortgage doesn’t automatically make yours a $2,000 rental.
This calculation can help you decide whether keeping the property truly makes sense before you structure your next purchase around it.
Make Sure You Can Handle Two Properties
Qualification is only part of the decision.
Once you become a landlord, a broken furnace at your rental doesn’t wait until you finish paying for the refrigerator you just bought for your new house. Neither does a vacancy between tenants.
Before keeping your old home, consider whether your finances have room for mortgage payments, repairs, insurance, taxes, property management if needed, and periods when no tenant is paying rent.
You may also encounter different insurance and tax considerations once the property is no longer your primary residence, so those costs should be part of your planning.
Work Out the Order Before You Start House Hunting
Timing can make this type of move much easier.
Will you secure a tenant before closing on the new house? When will you move out? Does the property need repairs before someone can rent it? How will a security deposit and first month’s rent be documented if your lender needs them?
Answering those questions before you make an offer can help you avoid building your purchase plan around rental income that cannot be used the way you expected.
Find Out What Keeping Your Home Means for Your Next Mortgage
Turning your current home into a rental can allow you to move without giving up a property you would rather keep. The key is knowing how both homes fit into your finances before committing to the next purchase.
At Mortgage Solutions Financial, we can review your existing mortgage, expected rental income, and financing options together. If you want to purchase a home while keeping your current property, talk with our team before listing it for rent so we can help you understand how that decision may affect your next mortgage.
