Best Loan Programs for This Situation
If you're relocating more than 100 miles for employment and can document a one-year lease, deposit, market-rent appraisal, and 25% equity on the departing residence, FHA lets that rental income offset the old mortgage payment at 75% of the lesser of lease or appraised rent, freeing up DTI room for the new purchase.
Conventional guidelines don't apply FHA's 100-mile rule, but they weigh your equity position and reserves differently. Depending on your equity in the departing residence, you may need additional reserves rather than a documented relocation distance. Dan runs both scenarios side by side.
For PCS moves and other military relocations, VA typically looks at your orders and a signed lease rather than FHA's 100-mile threshold, though occupancy and reserve requirements still apply. If you're active duty relocating on orders, this is worth comparing against FHA directly.
Taking a new job somewhere else and not ready to sell the house you're in? Renting it out and buying your next primary residence is a common and reasonable plan, but it runs into one of the most misunderstood rules in mortgage lending: whether the old mortgage payment still counts against you when you qualify for the new one. The answer depends entirely on the loan program, the distance of your relocation, and how well documented your rental setup is before you apply.
Why This Trips Up So Many Borrowers
The assumption most people make is simple: "I have a lease, so the rent covers the old payment and it shouldn't count against me." That's not how underwriting works on most loan programs, and it's especially not how FHA works. A signed lease by itself does not remove the departing residence's mortgage payment from your debt-to-income ratio.
On FHA loans specifically, the rental income only offsets that payment if you're relocating more than 100 miles for employment, have a fully executed one-year lease with proof of deposit, an appraisal confirming market rent and at least 25% equity in the home. Miss any one of those and the underwriter counts the full PITIA on your old home as a debt on the new loan, exactly as if you weren't renting it out.
The FHA Path: 100 Miles, 25% Equity, and the 75% Calculation
If your relocation qualifies, FHA doesn't count the full rent. It uses the lesser of your signed lease amount or the appraiser's market rent, then multiplies that by 75% to account for vacancy and upkeep. A $2,400 lease against a $2,300 appraised market rent nets out to $1,725 in qualifying income, not $2,400.
See our full FHA Departing Residence Rental Income Guide for the complete mechanics, documentation checklist, and the calculation walked through step by step.
How Conventional and VA Treat the Same Situation Differently
Conventional loans don't use FHA's 100-mile employment test. Instead, Fannie Mae and Freddie Mac guidelines look primarily at your equity position and available reserves in the departing residence, which can work in your favor if your relocation is shorter than 100 miles but your equity is strong, or work against you if your equity is thin even on a longer move.
VA loans handle PCS relocations and other military moves with their own framework, generally centered on your orders and a signed lease rather than a fixed mileage threshold, though occupancy history and reserve requirements still apply. If you're active duty or a veteran relocating on orders, it's worth running the VA numbers against FHA before assuming one program is automatically better.
What to Line Up Before You Make an Offer on the New Home
Order the appraisal on your departing residence as early as possible, it establishes both the market rent figure and the equity position, and both numbers need to land where you expect before you can count on this income. Get the lease fully executed with at least a one-year term and collect proof of the deposit or first month's rent.
If your relocation is close to the 100-mile line, document it precisely: an offer letter, employer relocation letter, or transfer paperwork showing the new job location and the actual distance. And if you've already been renting the departing residence and it's on your Schedule E, bring the last two years of tax returns instead, that path is analyzed differently and skips the 100-mile question entirely.
This scenario comes up constantly with Bakersfield borrowers relocating for oil and gas, healthcare, or ag industry jobs, and I'd rather run the real numbers with you before you make an offer than after. The lease alone doesn't do what most people assume it does. I need the relocation distance, the appraisal, and the lease terms to tell you definitively whether that old mortgage payment is coming out of your DTI or staying in it. Get me those details early and we can plan the whole purchase around the actual answer instead of an assumption.
Relocating for a new job and want to know whether your current home's rent will actually offset that mortgage payment on your new FHA loan?
Call Dan at (661) 342-9381. He'll review your income documentation and loan options in a free call.