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“30% Equity Cushion” Necessary for Rental Income, Not Qualifying

Buyers who wish to retain and rent out their “departing residence” (instead of selling it) must have an “equity cushion” of at least 30% for conventional financing or 25% for FHA financing, if they wish to use rental income from the departing residence to qualify for their new purchase.

The “equity cushion” is the amount of equity a homeowner has divided by the total value of the property. Lenders typically require a departing residence appraisal to verify the “equity cushion” (if rental income is used to qualify).

The above info is relatively well-known now. What is not well-known is the fact that not having the required equity cushion does not automatically prevent buyers from qualifying. Buyers who lack the required equity cushion simply must qualify for both their departing residence housing payment along with their new residence housing payment.

With rates and payments as low as they are, many of our buyers are pleasantly surprised to find out that they qualify for two housing payments without using any rental income at all.

Jay Voorhees
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646