Tacoma's #1 Mortgage Expert

As of today, October 1st there are some new guidelines to keep in mind when keeping your current residence as a rental or 2nd home. 

I. Purchases: Conversion of Primary Residence to Second Home or Investment Property 

Conversion to Second Home
Both the current and proposed mortgage payments must be used to qualify the borrower for the new transaction and 6 months PITI for both properties is required to be held in reserves. The reserve requirement may be reduced to 2 months PITI for both properties if there is documented equity of at least 30% in the existing property, based on a full appraisal minus any outstanding liens. Use of the previous residence as a second home must be reasonable; otherwise, it must meet the following requirements for conversion to investment property. 

Conversion to Investment Property
Both the current and proposed mortgage payments must be used to qualify the borrower for the new transaction and 6 months PITI for both properties is required to be held in reserves. The borrower is permitted to use rental income to offset the housing payment for the previous residence if there is documented equity of at least 30% in the existing property, based on a full appraisal minus any outstanding liens. The rental income must be documented with a copy of the fully executed lease agreement and receipt of a security deposit from the tenant and deposit into the Borrower's account. Rental income may not be used if 30% equity cannot be documented or if the LTV on the proposed mortgage is greater than 80%. A property that is pending sale but will not close prior to the date of purchasing a new primary residence will be treated as an investment property for qualification purposes. 

If you planning to purchase in the near future, feel free to call our office and we can run the numbers to see how this effects you.  (253) 472-1500.  Please note this is a Fannie Mae/Freddie Mac change and we still have access to some local deposit based lenders that do not follow the above guidelines.