Converting Home to Investment Property

Conventional

It is no longer required to document minimum equity and additional reserves associated with the conversion of a primary residence to a second home or investment property. If the borrower does not have a minimum of one-year investment property management experience:

  • Lease agreement of at least one year’s duration.

  • Evidence of the payment of the security deposit and first month’s rent.

  • The rental income can only offset the PITIA of the rental property, and

  • Rental income exceeding the PITIA cannot be added to the gross monthly income to qualify.

FHA

If rental income is being used for the property being vacated:

  • Obtain an appraisal verifying at least 25% equity in the property with market rent.

  • Lease agreement of at least one year’s duration.

  • Evidence of the payment of the security deposit or first month’s rent.

  • The borrower must be relocating more than 100 miles from the current principal residence.

USDA

Rental income cannot be used on a vacating principal residence.

VA

Prospective rental income can offset the mortgage payment on the rental property:

  • If there is no indication that the property will be difficult to rent.

  • This rental income may not be included in effective income.

  • Three months’ PITIA reserves required.