Renting Out Your Current Home
Keeping the house you already own and renting it out while you buy the next one works, and the rent can help you qualify. When the tenant is a family member, the documentation tightens considerably.
The Rent Counts, If You Can Prove It
A family tenant raises the bar on what counts as proof
- A lease agreement, fully completed and executed, meeting the applicable agency requirements
- Evidence that a security deposit or the first month’s rent was actually paid
- That evidence must be a canceled check or a record of an online transfer
- It must be dated on or near the date the lease was signed
- Cash payments are not acceptable evidence
- The rental income credited is the lesser of the lease amount or market rent
The rental income you are credited with is the lesser of the lease or market rent
A Fully Executed Lease
Proof The Deposit Was Actually Paid
Dated On Or Near The Lease Signing
Cash Is Not Accepted
A Rent Schedule May Be Required
What A Family Tenancy Requires
These are the documents required when the departing residence is being rented to a family member.
Renting your current home rather than selling it is a normal way to buy the next one, and the rental income can be counted toward qualifying. What changes the paperwork is who the tenant is. Where the departing residence is being rented to a family member, the file has to carry more than a signed lease.
Two things decide how smoothly this goes. The first is who the tenant is, because a family tenancy triggers a specific documentation set that an arm’s-length lease does not. The second is how the money moved, because a traceable payment dated to the lease is the whole ballgame and a cash handover cannot be substituted for it. Sorting both out before the lease is signed is far easier than reconstructing it afterwards.
The requirements are specific. A fully completed and executed lease that meets the applicable agency requirements, plus evidence that a security deposit or the first month’s rent was genuinely paid, in the form of a canceled check or a record of an online transfer dated on or near the lease signing date. Cash is not acceptable evidence. The rental income credited is the lesser of the lease amount or market rent.
What To Have Ready
Six situations that decide how smoothly this goes.
You Are Moving Up And Keeping The House
The most common version of this. Your current home becomes a rental, the rent supports the new file, and the documentation follows the standard route.
The Tenant Is Your Son Or Daughter
Entirely allowed, and entirely documented. A family tenancy carries an extra layer of proof precisely because the two parties already know each other.
The Money Moved Electronically
A bank transfer, an online payment record, or a canceled check all work. What underwriting wants is a record created by someone other than the two of you.
They Paid You In Cash
This is the one that stops files. Cash is not acceptable evidence of a security deposit or first month’s rent, however genuine the arrangement happens to be.
The Lease Is Generous
A lease written above market does not raise the income you are credited with. The figure used is the lesser of the lease and market rent, so an inflated lease buys nothing at all.
The Home Has An ADU
Rental income from a departing residence with an accessory dwelling unit is eligible, and a comparable rent schedule may be required depending on how long you have been receiving it.
Hear From Homeowners Like You
Frequently Asked Questions
The questions that come up when the old house is becoming a rental.
Yes. Keeping your current home and renting it out while you purchase the next one is a normal transaction, and the rental income can be used toward qualifying. What varies is the documentation, and the strictest version applies when the tenant is a family member.
You can. There is no prohibition on renting your departing residence to a relative. What comes with it is a heavier documentation requirement, because the arrangement is between people who know each other and underwriting cannot take the lease on trust alone.
A fully completed and executed lease, plus evidence that a security deposit or the first month’s rent was paid. That evidence has to be a canceled check or a record of an online transfer, and it has to be dated on or near the date the lease was signed.
It is. Cash is not acceptable as evidence of a security deposit or first month’s rent on a family tenancy. If the payment has already happened in cash, the practical fix is usually to redo it through a traceable channel and date the record to the lease, which is a conversation worth having before the file goes in.
The lesser of the lease amount or market rent. Market rent is established through the appraisal process, so if the lease and the market disagree, the lower of the two governs what you are credited with.
It does not help. Writing the lease above market does not raise the qualifying income, because the figure used is the lesser of the lease and market rent. An inflated lease adds scrutiny to the file without adding anything to the income side.
A Single-Family Comparable Rent Schedule may be required depending on how long you have been receiving the rental income. Where the arrangement is new, the schedule is more likely to be requested, since there is less history to work from.
Find out what you qualify for
Whether you are renting the old house to a stranger or to your own family, the documentation is worth setting up correctly before the lease is signed. Start a pre-qualification today.
Get Pre-Qualified*Loan amounts, rates, terms, and down payment requirements are subject to credit approval, income and asset verification, and program eligibility. Use of rental income from a departing residence is subject to agency and FHA guidelines, including lease, documentation, and appraisal requirements, and is subject to the rules in effect at the time of application. Additional requirements apply where the departing residence is rented to a family member. Rental income credited is determined by underwriting and by the appraisal. This is not a commitment to lend. All loans are subject to credit approval, underwriting, and property qualification. Saxton Mortgage, LLC, NMLS #1717191. Equal Housing Lender.