I don’t know if it matters if you have equity or not. I think it’s more important to know how much is your payment vs income. If this is your first rental, some lender would let you count the average rent for your house as income and some would not let you until you own the rental for 2+ years. Different lender have different rules regarding this. However, if you say you can afford both payment, then I assume you wouldn’t have problem qualifying if you can’t count the rent toward your income.

It can be pretty complicated. More complicated than simply buying an investment property. Dont relie on us numbskulls. Talk to an experienced lender who can anticipate and work through all the issues with you in advance.

I would agree with sdr to talk to some home loan people. However my advice would be that you worst case it. That is, presume that the lender will treat your purchase as an investment property purchase no matter how much you tell them it is not going to be that way. If this is the case you will not get the same rate as an owner occupied rate. You can even go so far as to literally put your home on the market for sale and many lenders still will not take the bait.

With regards to your ratios that the lender will use for your approval process, it doesn’t really matter how much equity you have in the home, they will more then likely count both mortgage payments, insurance and property taxes in the calculation because you do not have a tenant in place. Again, this is my speculative answer and it is a worst case answer. As sdr said talk to some lenders or mortgage brokers and see what they say.

If you had some time, then moving out, renting a place and getting some tenants in your home with s a little bit of seasoning would help mitigate the situation.

The bigger question is whether you want to become a landlord. There is a huge learning curve involved to do it right, and beginners too often quickly say…I can just rent it out. Are you handy with tenant-caused maintenance problems? Ready to get up to speed on all tenant-landlord laws? Can you list the red flags that should warn you away from certain applicants? Have you fully accounted for vacancy and fixup periods between tenants? Know how to interpret credit reports? Above all, have you considered ALL the costs involved over time, including the value of your own time?
Historically, owning a rental property is only worthwhile in those rare periods of rapid appreciation. From an operating standpoint you are up against the big rental or condo complexes that have economies of scale in purchasing, contracting, advertising, showing and on-site management. And prospective tenants are understandably suspicious of amateur landlords, which may lower your achievable rent.

[quote=EconProf]The bigger question is whether you want to become a landlord. There is a huge learning curve involved to do it right, and beginners too often quickly say…I can just rent it out. Are you handy with tenant-caused maintenance problems? Ready to get up to speed on all tenant-landlord laws? Can you list the red flags that should warn you away from certain applicants? Have you fully accounted for vacancy and fixup periods between tenants? Know how to interpret credit reports? Above all, have you considered ALL the costs involved over time, including the value of your own time?
Historically, owning a rental property is only worthwhile in those rare periods of rapid appreciation. From an operating standpoint you are up against the big rental or condo complexes that have economies of scale in purchasing, contracting, advertising, showing and on-site management. And prospective tenants are understandably suspicious of amateur landlords, which may lower your achievable rent.[/quote]
Could be the best post of the year.

I had to show that I could ‘afford’ both houses…