If you’re buying a new primary residence and planning to rent out your current home rather than sell it, a recent Fannie Mae guideline update could make it easier to qualify for your next mortgage. Your current home becomes what lenders call a “departing residence.” In the past, using rental income from that property to help qualify for your new mortgage required a signed lease agreement and documentation showing receipt of rent. It is difficult to try to time this when you haven’t actually moved out or purchased a new home yet.
Under Fannie Mae’s updated guidelines, a lease agreement and proof of rent are no longer required. Instead, the property’s market rent can be used to determine qualifying rental income. That means you may be able to qualify for your next home before you’ve secured a tenant or started collecting rent on the home you’re leaving.
How Can Market Rent Be Documented?
Depending on the loan and property, market rent may be supported by:
- A full appraisal that includes Fannie Mae Form 1007 (Single-Family Comparable Rent Schedule)
- A standalone Form 1007
- Market-rent information supported by comparable rental properties, including information available through sources such as the MLS and online real estate platforms
What If You’ve Never Been a Landlord?
That’s okay. If you do not have a history of receiving rental income, we can still use market rent to offset the housing payment on the departing residence; however, you will not be given any positive income. This is still better than the requirement to qualify with both housing payments counted against you.
Why This Change Matters
This update could be particularly helpful for homeowners who want to keep their current home as a rental property while purchasing their next primary residence. Previously, the timing of securing a tenant, executing a lease and documenting rental payments could create an additional hurdle during the mortgage qualification process. Allowing market rent to be considered in applicable situations gives homeowners another potential path to qualifying.
As always, the exact requirements depend on the borrower, property and loan scenario. If you’re thinking about buying a new home while keeping your current property as a rental, it’s worth reviewing the numbers before you list your home for rent or assume you need to sell it. A little planning upfront can help you understand what rental income may be used, how your existing mortgage payment will be treated, and what price range you may qualify for on your next home.
