Are you looking to upgrade to a newer, larger home? Do you have the income now to support this decision? If you are like most people in today’s economy, proving that you have enough income to afford your new monthly payments along with other debts which you currently have is tough.  Should you fail to do this, you will probably not be able to get a mortgage.

I talked to some industry experts about this, and they shared with me a really great piece of advice. If you want to take advantage of this, you will have to turn your current or new property into an income generating unit. What is the effect of doing this? Your figures for monthly income will rise dramatically; especially if your other home is paid off. In order to do this, you must meet certain eligibility criteria which I have outlined below.

The 20% Down Payment

The down payment is something which you are already aware of. And yes, a 20% down payment is not mandatory, but if you want to act on this tip, you must have this much in your bank account.

Assume your mortgage payments will be around $2,400 and your rental income is $2,200. Using 75% as the vacancy rate, the amount is less than $750 from your monthly payment of $2,400.

Whatever your income is, it must offset a liability of $750, which significantly increases your purchasing power.

30% Home Equity

You already have a home but how much equity do you have in it? If this figure is 30%, you should rent out this home instead of the new one. Once again, the lenders will use 75% to offset the mortgage payments.

Rates and Fees

If you are going to rent out your new home, you should know that lenders offer higher interest rates on rental properties than primary residences. This is why you may have to pay greater monthly payments.  In most instances, this rate should be about 0.25% points higher than on a primary residence.

Documentation

The appraisal fee for your income property will be more than the average amounts. Appraisal costs are between $400 and $500, but in your situation, they can easily go up to $700. You may also have to bear higher costs which are incurred in providing a rental survey of the market.

Though you can go for any approach you want, there are more steps involved when you rent out your current property.

Source: www.finance.yahoo.com

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