Jack and Judy purchased their first home before the birth of their first son. Over the years, they paid down the mortgage on their two-bedroom apartment and built solid equity. Now, with a second child on the way, they need more space and are considering upgrading to a larger home.
While the housing market has presented them with a great opportunity to buy their next property at a favorable price, selling their current home right now would not yield strong returns. When they discussed their options with their mortgage broker, they were introduced to a strategic alternative: renting out their existing home to help qualify for and purchase a new one.
At Mares Mortgage, this scenario is increasingly common. Many homeowners choose to convert their primary residence into a rental property instead of selling, allowing them to build long-term wealth while moving into a home that better fits their lifestyle.
Renting out your current home can offer several advantages, especially in slower or uncertain markets.
Key benefits include:
By holding onto their first property, Jack and Judy can maintain ownership of an asset while leveraging its income potential to qualify for their next mortgage.
Understanding the Financial Requirements Before renting out your house and buying another, lenders will carefully evaluate your finances.
Debt-to-Income Ratio (DTI) Lenders typically require your total monthly obligations—including both mortgages—to fall below 43% of your gross income. In some cases, rental income can be used to offset the existing mortgage.
Rental Income Guidelines Most lenders will allow 75% of documented rental income to be counted toward qualifying income, accounting for vacancies and maintenance costs.
To use rental income, you may need:
How Does Rent To Own Work: Beginner’s Guide
There are multiple mortgage strategies that allow homeowners to buy another property while keeping the original one.
Conventional Loans If you have strong credit and sufficient income, a conventional loan is often the most straightforward option.
Cash-Out Refinance A cash-out refinance allows you to tap into your home’s equity and use the proceeds for a down payment on your new home.
Home Equity Line of Credit (HELOC) A HELOC provides flexible access to equity without refinancing your existing mortgage, often at lower interest rates than personal loans.
Preparing Your Home for Rental Success Before listing your property, take steps to ensure it’s rent-ready.
Key preparation steps include:
Renting your property introduces new tax implications.
Potential tax benefits include:
However, rental income must be reported, and capital gains rules may apply if you sell the property later. Consulting a tax professional before converting your home into a rental is strongly recommended.
IRS Rental Income and Expenses Guide
Many homeowners run into trouble by overlooking key details.
Avoid these pitfalls:
Working with an experienced mortgage professional can help you avoid costly missteps.
This strategy works best if:
If these conditions align, renting out your home can be a powerful step toward building a real estate portfolio.
For homeowners like Jack and Judy, renting out their current home while buying another can be a smart financial move—allowing them to upgrade their living situation without sacrificing long-term investment potential.
With the right loan structure, rental documentation, and financial planning, this approach can help you grow wealth while meeting your family’s changing needs.
Thinking about renting out your home and buying another? Schedule a consultation with Mares Mortgage to explore your options and create a strategy tailored to your goals.
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