Owner Occupied Homes

There are cases where a homeowner with an owner occupied home wants to purchase another owner occupied home and wants to sell their current owner occupied home after they move in to their new owner occupied home.  Unfortunately, this can get done but the homeowner needs to qualify for both mortgages and many folks cannot qualify for both mortgages due to exceeding the maximum debt to income ratios.  However, there are potential solutions.  A homeowner with an owner occupied home can convert the owner occupied home into an investment home without refinancing it and use 75% of the potential market gross income to qualify for the new owner occupied mortgage loan.  There are rules and regulations concerning this and it depends whether the new owner occupied home purchase is a FHA insured mortgage loan or a conventional mortgage loan.

Owner Occupied To Investment Home: FHA Loans

If a homeowner currently lives in a home and needs to convert his or her owner occupied to investment home and needs to use the potential rental income in order to qualify for the maximum debt to income ratios allowed, then the homeowner needs to have at least 25% equity in his or her current home.  The homeowner does not need to refinance their home but needs to get an investment home appraisal with potential rental income.  Whatever the appraiser comes up with as potential rental income, then 75% of the potential rental can be used for the mortgage loan borrower’s additional income.  This rental income is necessary for many folks in order to qualify for both mortgage loans.   FHA does not require that the homeowner have a tenant with a signed lease.  FHA only requires that the homeowner has 25% equity on the owner occupied home that will be converted to an investment home.

Owner Occupied To Investment Home: Conventional Loans

If a homeowner currently lives in a home and needs to convert his or her owner occupied to investment home and needs to use the potential rental income in order to meet the debt to income ratios, the homeowner needs to have at least 30% equity in his or her owner occupied home as well as have a one year lease agreement with a tenant in order to use 75% of the potential rental income on his conversion of the owner occupied to investment home..  The homeowner also needs two months reserves on both his converted owner occupied to investment home as well as two months reserves on his new owner occupied home.  The new conventional mortgage loan program is much stricter than the FHA mortgage loan program.

Gustan Cho

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