November 16th, 2015 9:09 AM by Sam Kader MLO130505
Fannie Mae has informed lenders that when owners seek to convert their primary homes to rental investment property and buy a replacement home with a new mortgage, there will no longer be required minimum equity stake in the current home.
Under previous rules, put in place during the last decade to counter fraud schemes, you needed at least 30% equity in your primary residence if you wanted to convert it into a rental counting the rent towards your qualifying income for a mortgage on a new primary home plus six months liquid financial assets for reserve.
Underwater owners still have to be able to qualify all the standard tests to qualify for the new mortgage including payments on both the old and new mortgages as well as at least a couple of months reserve. They also need to be prepared to handle the duties of being a landlord, collecting rents and managing the property. Then there is the debt on the rental property that needs to be figured out. You can keep it as your rental property as long as it generates positive cash flows or eventually sell the property.