Just as a heads up, remember that a buyer keeping their existing owner occupied property and expecting to rent it to buy a new owner occupied property will have to either prove that they have at least 30% equity in the existing property (they will have to pay to have an appraisal done on the existing property and submit it with their request for financing for the new purchase), or qualify carrying both the old mortgage payment and new mortgage payment.  This is true for both conventional and government transactions unfortunately.  Please pass this information on to your realtors so you can save everyone time going forward.

Conversion of Current Principal Residence to Investment Property

If the borrower is converting a current principal residence to an investment property, the lender must ensure the borrower has sufficient equity to support both the current PITIA and the new mortgage being originated. The percent of equity in the current principal residence must be documented in accordance with the Equity in the Current Principal Residence requirements.

To confirm leasing of the newly converted property or unit (for a two- to four-unit property), the lender must obtain a copy of the:

  • fully executed lease agreement,
  • security deposit from the tenant, and
  • bank statement showing the deposited security funds.

The lender must calculate net rental income and qualify the borrower according to the following requirements: