Renting out a home? These industry changes could affect you

an image of a calculator - Home Rental

If you’re planning to buy a rental property—or you’re using income from one to purchase another property—take note of some recent industry changes that could affect you.

If you’re buying an investment property and you don’t own a primary home:

You can no longer use rental income on the property you’re buying to qualify for financing.

If you want to rent out your current home and buy a new one to live in:

If you’re using rental income from the old home to apply for financing for the new one, the rental income can’t exceed your monthly payments (including taxes and insurance) on that property.

For example, if the house payment plus taxes, insurance, and HOA dues equals $2,000 a month, you can’t be qualified for anything more than $2,000 a month of rental income.

This is a difficult change for people who own their rental homes free and clear. If you only pay $500 in taxes and income on the property you’re leaving, you can’t list income of more than $500 on your application for financing.

The one possible exception to this new rule is if you’ve already been managing rental properties for a year. In that case, your home financer will have to see a tax return showing that you’ve been receiving rental income for a year.