will getting an apartment "cancel out" my mortgage payment?

I bought my house in Sept 06’. I owe with the closing and cash out a total of 106k. It is worth about 125k. It was rehabbed before I bought it and is in good condition.
Next year I get a small check for about 10k that I want to use to get started in the rental business (P&I to show the bank).
If I was not able to get a rental due to my debt to income ratio I am going to rent my house out for $1100 a month, total debt service is $838.
If I move into an apartment and rent my house out will this cover my debt from my mortgage as if I did not have it at all? In other words will my debt to income ratio be back to when I had not morgage at all?

You still have the debt ( the principle owed ). and your income would change slightly, based on the difference between the net income from renting and the expense of renting your own apartment. The ratio would still look about the same. Renting out the house to cover the payment does not take the debt off of your balance sheet. One is cash flow and the other is a long term liability. The only variable you are changing in the equation is on the income side and that will be only minimally.


If I am looking for an owner occupied property why would they take my apartment rent into consideration? That would disappear as soon as I get the house and is not a factor after closing?

Right so if I can’t get another mortgage because my current mortgage is causing my DTI to be too high to get approved, then by renting out my house I can bring my DTI to a ratio where I can get approved. I assume.

Will the mortgage company look at just my P&I or the total monthly debt?

I just wanted to say that I’m interested in this question as well. My understanding is that if your rent is covering the mortgage by an adequate percentage (a little over 100%), then that wouldn’t count against you for the debt-to-income calculation when you’re trying to get additional properties.

As such, people are able to acquire more and more properties on their credit because, for the debt-to-income analysis done, even though the debt is still there, as long as it’s being rented out (by an adequate percentage), then it’s almost as if they ignore that debt.

By an adequate percentage, I mean that if you take approximately 25% off the rent you’re receiving, if the rent then still covers the mortgage payment, then, generally, the mortgage debt doesn’t count against you. Anything not covered by that amount would count against you for the debt-to-income analysis that is generally undertaken.

I said I’m interested in this question because that’s just my understanding and I’m not sure if it’s correct. Therefore, please do not rely on the above information. I would just like to get confirmation as well to your question and to my understanding.


My personal experience with this situation is the lender will allow 75% of your rental income to offset your debt obligation. The 25% discount is a safety buffer to accomodate underestimated rental expenses. Basically if your rent exceeds your debt payment by a sufficient amount the numbers will wash, as previously suggested.

Call a Good mortgage broker and talk to them. Explain exactly what you want to do and they will give you your options.

Many banks today won’t let you count the income unless you’ve been a landlord for 2 years. (proven by your taxes)

You will stand a better chance talking to a small town bank also, as if they hold their mortgages, they MAY be more flexible.

Bottom line…call and talk to a broker. This is a people business, the more you know and the more that know you…the more deals will come your way.

Another hitch in your plan is that when you rent out the house that you currently live in, you will need to tell your insurance agent. But your mortgage likely has a 1-2 year requirement that you live in the property (to stop people doing what your trying to do). If you tell your insurance agent then they will tell your mortgage lender. If you don’t tell your insurance agent and something goes bad, then you could be financially in trouble, also if your mortgage company finds out you are not living in the property during the 1-2 year period then they can call your mortgage.

You can do your idea you just need to check your mortgage loan docs and see what the personal resident clause states. If it is one year than you can take action in Sept 07.

Converting from a primary residence would require switching over to a fire and dwelling policy which is typically cost more as it’s a higher risk policy. As your insurance is typically escrowed, the bank would find out that the policy changed.

With that said though, you do sign a piece of paper that says you intend to live in the house for a year, however, there’s really no penalty if you don’t. Lots of investor loans are made under that premise which is why it’s hard to determine exactly how many investment properties are out there. I’ve never really heard of a case where the loan was called because it wasn’t owner occupied. You’d probably get in trouble for mortgage fraud if you defaulted, but then again there’s no money to be had from someone who defaults so I don’t really see the banks pursuing it. Has anyone ever read of any action on this anywhere? I haven’t seen any and I do read other industry trade publications.

Also as for DTI, that all goes out the window if you do a stated loan. Basically you state your income to meet the DTI requirements. This may be going away in the near future due to all the subprime problems, but for now you can still do it. It basically makes the rest of your argument moot. No need to get into a rental, stated income loans are just a little bit more than a regular full doc loan, probably 1/8 to 1/4 point higher. Now if you’re going to buy it as an investment property, the rate could be 1/2 - 5/8 higher. That’s really the reason people like owner occupied loans, rates are lower and there’s no way to tell if you just have one mortgage. You could even get two mortgages as owner occupied, you just tell them you intend to sell to sell the first one but just never do. Now I’ve even heard of 3 mortgages being owner occupied, but I forget exactly how that’s done, maybe one of them is a second home and the first you say you’re going to sell. Once you get up to 4, they don’t believe you.

 This is exactly how I got started in rental property.  I bought a house, rented it out, moved into an apartment, then my improved debt to income ratio allowed me to purchase more real estate.  Another upside was that qualifying for another loan could be done with an owner occupant loan (I now live in a duplex).
 The downside for me was the moving.  It's been hard to stay organized through the whole mess of moving from the house to the apartment to the duplex, and I did some rehabbing to the duplex before I moved in, so I found myself driving from the apartment to the duplex back and fourth for 90 days while I finished the rennovations.
 When the smoke clears from all of this activity (I also work overtime in a profession unrelated to real estate), I'm sure I'll be glad that I did all of this stuff.

Good Luck

Getting a loan called is a real situation as is mortage fraud and insurance fraud. You definitely need to check with your mortgage company on what their feels will be about him signing a year primary residence contract and then breaking that contract.

No matter what you do you need to call your insurance agent and let them know it is no longer your primary residence (or you will be in a world of hurt if something bad happens) and you need to check with the lender if they have a problem with you moving out and renting it.

Don’t risk getting the loan called or lieing to an insurance agent. It WILL ABSOLUTELY catch up with you. I’ve done it once and it was no fun. If your going to do it anyways then make sure to ask questions here on this forum so you at least reduce your risk.

I am not doing it until this time next year. I will make sure everything I do is by the books and legit. I got into so much trouble when I was in my late teens that I FEAR breaking any rules or laws.

Awesome! I don’t mind lieing as long as it is legal (stated loans). If you only wanted one property then the risk is low, but as you accumulate more and more properties you will find that the loose ends/lies start to add up. I will only do things that are legit.