Converting your current home to a rental property

dchapman70
Jun 4
3 min read

Renting Out Your Current Home to Buy a New One? Here’s What You Should Know

Thinking about keeping your current home as a rental while buying a new primary residence? You’re not alone—and in today’s market, this strategy can be a smart way to build wealth and create future flexibility.

As a local mortgage lender here in Memphis, TN, I regularly work with homeowners who want to make this move. Whether you're upsizing, relocating, or simply taking advantage of low interest rates on your current loan, there are a few key things to consider before turning your existing home into a rental and financing a new primary residence.

Why Keep Your Current Home as a Rental?

For many buyers, selling isn't the only option when moving. Keeping your current home and renting it out can offer several advantages:

Build long-term equity: Let tenants pay down your mortgage while the property potentially appreciates.
Generate rental income: Create a steady income stream that can offset your new housing costs.
Keep a low-rate mortgage: If your current interest rate is lower than today’s market, it may make more sense to hold onto the home.
Flexibility for the future: Renting gives you the option to move back later or sell when the market improves.

Key Mortgage Considerations

Before you decide, it’s important to understand how this impacts your ability to qualify for a new mortgage.

1. Occupancy Requirements: If you purchased your current home as a primary residence, most lenders require that you’ve lived there for at least 12 months before converting it to a rental. If that time has passed, you can typically move forward without issue.

2. Qualifying With Two Mortgages: Lenders will evaluate your debt-to-income ratio to ensure you can afford both your current mortgage and the new one. However, you may be able to use rental income to help you qualify. To do this, you’ll usually need:

A signed lease agreement
Documentation of the first month’s rent and/or security deposit
A market rent analysis (often provided by an appraiser)

3. Property Classification: Your current home will be reclassified as an investment property, while your new home will be your primary residence.

4. Mortgage Type Considerations: If your existing mortgage is FHA or VA, there may be additional requirements or limitations. If your current loan is an FHA loan, you won't be able to use FHA financing for the new home unless you qualify for an exemption . VA loans may need to be refinanced into a conventional loan if you need to reuse your VA entitlement.

Steps to Take Before You Rent Out Your Home

Check your current mortgage terms to confirm occupancy requirements.
Speak with a mortgage lender to get pre-approved for your new primary home purchase.
Run the numbers to ensure the rental income supports your goals.
Update your insurance to a landlord or rental dwelling policy.
Prepare the home for renters—cleaning, repairs, and possibly updates.
Talk to a tax advisor about how rental income and expenses will impact your tax situation.

Final Thoughts

Keeping your current home as a rental while buying a new one can be a great strategy—but it’s important to structure it the right way. Lender guidelines, occupancy rules, and income calculations all play a role in whether you qualify.

If you're considering this move, let's talk about your mortgage options and create a plan that supports your goals. As a local lender here in Memphis, I’m here to help you make smart, informed decisions every step of the way.