How to Buy Your Next Home in Denver without Selling Your First One
Denver just earned a title most homeowners don't know about. According to recent data, Denver leads the nation in accidental landlords. About 3.9% of homes currently listed for rent were recently listed for sale.
It's not hard to understand why.
A lot of Denver homeowners purchased around COVID and locked in historically low interest rates. Letting go of a 3% mortgage to sell into today's market is not an easy decision. At the same time, some neighborhoods are experiencing a correction. Just like the stock market, there are normal ups and downs. In areas where prices are softening, selling right now might not bring in the profits that sellers hoped.
So instead of selling, they're renting. And with the right strategy, that can be a REALLY smart move.
Here's what most accidental landlords don't realize: you can keep your home, rent it out, and still use that equity to buy your next place. But the order of operations matters a lot.
First, Understand How Lenders Look at This
When a lender qualifies you for a new home, they look at your debt-to-income ratio, or DTI. Simply put, that's the ratio of your monthly debt obligations compared to your monthly income.
If you already own a home and want to buy another, both mortgages get factored into your debt side of that equation. That can limit what you qualify for on your next purchase.
But here's where renting your old home changes the math.
How Rental Income Affects Your Qualification
If you plan to rent your current home, lenders have a few ways to handle it depending on the program you're using.
In some cases you don't even need a tenant in place. A lender can order what's called a rental appraisal, which estimates what the property would rent for on the open market. Other programs do require a signed lease before they'll count the income. Some want a lease plus a security deposit. It really depends on your unique financial situation and the loan program involved.
Either way, the goal is the same: the lender wants to know that the home can be rented and what it will likely bring in each month.
Once they have that number, they'll apply a 75% discount to it. That 25% buffer accounts for potential vacancies, maintenance costs, and other expenses that come with being a landlord. The remaining 75% of the projected rental income gets used to offset the mortgage payment on your old home.
That means instead of carrying the full weight of two mortgages on your DTI, you're only being held responsible for a fraction of the old one. That can meaningfully expand what you qualify for on your next purchase.
Using Your Equity to Buy Your Next Home
Qualifying for a new mortgage is one piece of the puzzle. Coming up with a down payment is another.
This is where a cash-out refinance or a HELOC (Home Equity Line of Credit) comes in. Both allow you to tap into the equity you've built in your current home and use those funds toward your next purchase. Depending on where interest rates are at the time, one option may make more financial sense than the other.
Why Timing Matters Here
There's a critical detail that most people miss: you want to pull the equity out before you officially rent the property.
Once your home is occupied by a tenant, lenders reclassify it as an investment property rather than a primary residence. Investment properties typically come with higher interest rates. The reason is simple: lenders know that if things go sideways financially, a homeowner will always protect their primary residence first. An investment property carries more risk in their eyes.
By taking out a HELOC or doing a cash-out refinance while the home is still your primary residence, you can lock in better terms. Then once that's done, you rent the property out and use the funds you pulled out toward your next down payment.
A Lot of Moving Parts. But It Can Work
There's no question this strategy involves a lot of calculations. Your current equity, rental market rates, projected DTI, interest rates on a refinance or HELOC. All of these need to be looked at together before committing to this plan.
But if the numbers work, this is a powerful way to hold onto an asset with a low interest rate, generate rental income, and still move into your next home.
If you're trying to figure out where to start, I'd love to help you work through it. Book an intro call and we can look at your specific numbers together.
