How do I convert my primary residence into a rental property?

For a Conventional Loan:
: When converting a principal into an Investment Property the following requirements must be met or else the borrower must be qualified with full payment of the current present residence and the subject property:

• There must be documented equity of at least 30 percent in the existing property derived from at least a 2055 exterior –only inspection, dated no more than 60 days from the Note Date minus potential outstanding liens- HCLTV).

• The rental income must be documented with a copy of the fully executed lease agreement and the receipt of a security deposit from the tenant and deposit into the borrower’s account.

If the 30 percent equity in the property cannot be documented, rental income may not be used to offset the mortgage payment. Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction; and 6 months of PITI for both properties is required to be in reserves for manually underwritten loans. For loans submitted to Desktop Underwriter, DU will determine the amount of reserves. For Loan Prospector loans, the reserve requirement will be the greater of six months PITI reserve for both properties or the reserves required by Loan Prospector.
Gift funds cannot be used for reserves. Loans that require mortgage insurance must have 6 months of PITI
reserves for both properties.

For a FHA Loan:
When converting a principal residence into an Investment Property, the borrower must be qualified with both payments. Rental income may only be considered under the following two circumstances:

• The homebuyer is relocating with a new employer or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance, rental income from the property being vacated may be used. A fully executed lease with at least one year remaining after loan closing is required.

• When the LTV of the property being vacated is 75 % or less, rental income may be used. The LTV is determined by a current appraisal no more than six months old or by comparing the unpaid principal balance to the original sales price. In addition to using standard full appraisal forms, the appraiser may also use drive by form 2055 for detached homes, or condo form 1075.

A signed lease agreement and evidence of receipt/deposit of the security deposit check is required.