Current principal residence is pending sale but the transaction will not be closed (with title transfer to a new owner) prior to the new transaction.

Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction.

Conversion to a Second Home

• Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction; and
• 6 months of PITI for both properties is required to be in reserves. Lender may consider reduced reserves of no less than 2 months for both properties if there is documented equity of at least 30 percent in the existing property (derived from an appraisal automated valuation model(AVM), or Broker Price Opinion(BPO), minus outstanding liens)

Conversion to an Investment Property

Fannie Mae will continue to permit up to 75 percent of the rental income to be used to offset the mortgage payment in qualifying if there is documented equity of at least 30 percent in the existing property (derived from an appraisal, AVM, of BPO, minus outstanding liens).

            The rental income must be documented with:

• A copy of the fully executed lease agreement; and
• The receipt of a security deposit from the tenant and deposit into the borrower’s account.

It the 30 percent equity in the property cannot be documented, rental income may not be used to offset the mortgage payment.

• Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction; and
• 6 months of PITI for both properties is required to be in reserves
• Rental income that will be generated from the prior principal residence is based solely on a fully executed lease agreement for that property provided by the borrower (now landlord).
• If the lender used current lease agreements, the net rental income will be 75 percent of the gross rent from the lease agreement, with the remaining 25 percent being absorbed by vacancy losses and ongoing maintenance expenses.

Minimum reserves are required for investment properties: 2 months for one-unit properties, and 6 months reserves for two-to-four-unit properties.  Minimum reserves are not required for second home transactions.