Converting Your Primary Residence



For the month of September, The Mortgage Blog will focus on debt. We will look solely at how debt impacts income and qualifying to buy a home using your income. Some of these topics also spill over into impacting credit scores, but the focus for this month is on debt itself.

There are several misconceptions and questions about debt and how it impacts your ability to qualify for a mortgage. For example, if I’m not selling my home, but want to buy a new one, I can just sign a lease agreement and use that income? Right?

How about this one… “my student loan payments are in deferment, so they don’t count against me right now.”

The answer to both is “maybe.” The next few posts will focus on these topics. Today, let’s look at converting your primary residence.

With the economic downturn and housing slump, many homeowners find themselves with a current home they can’t sell. That doesn’t mean they don’t need a bigger home for a growing family. What options are out there for people in this situation?

Let’s say, for whatever reasons, you need a larger home but can’t sell your current home. How do you qualify for the new home? The answer depends on the amount of equity in the home you currently own.

  • if you have 30% or more equity in the home, then you can use some of the potential rental income from a signed lease agreement. The lease agreement and first month’s rent must be documented for underwriting, but you would be able to use some of the rental income to offset the mortgagee payment on your current home.
  • if you have less than 30% equity, then you have to qualify to make both mortgage payments (your current home AND your new home) using your current salary. Potential rental income cannot be used.

There are those in a situation where they have been renting out their home for a year or more. At the time, they didn’t qualify to buy another home, so they rented out the home they owned. Then began renting a larger home they are now living in as their primary residence. In this scenario, documented rental income on your tax returns will be used when qualifying to buy a new home. The goal is to at least break even on the cost of renting the home versus the rental income.

Whether you own a home with equity, without equity, or currently a home you own while you live in a rental home yourself, there are hoops you’ll need to jump through to make sure you qualify for the home. If this is you, and the new home is in the state of Georgia, contact me. My contact info is at the bottom of the page. We can get started on this process today!



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