Boise Real Estate is full of opportunity right now, and many people are asking me, “Can I rent out my current home and buy another?” Seems like a good strategy, and, it is. But, before you go shopping for that new home, you need to know the ins and outs of how to turn your primary home into a rental and qualify for another.
Step One–Talk to a Lender or Mortgage Broker
Before you get all ethered up on the smell of the opportunities in new construction or use up a bunch of gas checking out open houses, you need to see what it takes to qualify for that second home.
I’ve asked Tim Baldwin at Source Mortgage to provide me with some of the basic qualification guidelines for converting your primary home into a rental–Of course, this is just a simple outline, but, here’s what he came up with:
Basic requirements for turning Primary Resident in to an Investment Property
- DTI – is up to 50% Approve Eligible
- Can’t smell of buy and bail (words from the lender)
- 620 minimum credit score
- In order to count the rental income of the converted property, the borrower must have documented equity of at least 30% (appraisal value minus outstanding liens) in the existing home based on a full appraisal.
Ok, lets break this down a bit.
DTI, or Debt to Income Ratio is your total income (wages/salary, investment income, rental income, etc.) divide by your total debt (credit cards, car payments, secured loans, etc.). If your monthly debt, not bills (gas, utilities, phone bill, etc.) totals $1000/month and your total income is $3000/month, then your debt to income ratio (DTI) is 30%. According to the basic requirements of converting your primary residence to an investment property this scenario would allow for a total debt of about $1500.
Buy and Bail–It means what it says. Historically, many homeowners who were upside down on their mortgage saw opportunities to move up for less money. They got the new loan and stopped paying on the other other. Smarmy, really.
Rental Income–Pretty straight forward. It’s the income you get from the home that’s been turned into the rental. In many cases, you can’t use 100% of the rental income toward your DTI, but only 50-75% to figure for a vacancy factor.
Do You Qualify?
Every situation is unique and I can’t say for certain if you can qualify so you need to call Tim right away if you’re interested. In just a few moments, he can see if you’re a candidate for converting your primary home into a rental. Right now, the rental market is doing well; homes are renting quickly and are bringing in top dollar. If the housing market takes off again, you’re very well positioned to sell if you’d like. On the other hand, if prices and values drop, it will force more people into the rental market and again, you’re covered.
Where’s the Risk?
Like any kind of investment, there is some inherent risk; market fluctuations (addressed above), job loss, accident or injury affecting income. But, with rentals, your biggest risk is going to be non-payment from a tenant and damages from a tenant, and those are a possibility.
Mitigating the risk. Hiring a property manager is the best way to protect yourself from risks of being a landlord. Of course, not all property management companies are created equal, so do your homework, or hire me; my company currently manages residential homes throughout Boise/Meridian/Eagle/Star.
What’s holding you back?
If you’re ready to upgrade, downsize, upsize, move to a different part of town or whatever reason you can come up with for moving, this is a pretty amazing time:
- Interest rates are still low
- Rental Rates are high
- Rental Vacancy Rates are low
- Real Estate inventory is on the decrease (down 44% from this time last year)
Just take a look at my home search page and see what’s out there–you’ll be amazed at the opportunities. It doesn’t cost you anything to consider it, or check out the opportunity! It may not be right for some, but it is right for others–which category do you fit into? Don’t wait, give me a call or email 
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