Converting Your Austin Home to a Rental: The 2026 Rules

On September 2, 2026, Fannie Mae rewrote the rules for a situation thousands of Austin homeowners are in right now: you want to buy your next home, and you would rather keep the one you have than sell it into a market with 5.8 months of inventory and a median sold price of $413,499 (Team Price Real Estate, September 4, 2026). The old playbook was simple. Sign a lease, hand it to your lender, and the rent helps you qualify. Under the new Selling Guide section for departing residences, a lease no longer does that job. Here is what counts now, and what converting costs you in Texas taxes.

Key points:

• Fannie Mae Selling Guide B3-3.8-05 (09/02/2026) states that lease agreements “are not permitted for any departing residence.” Market rent is documented by appraisal, Form 1007, or three rental comps instead.
• Lenders count 75% of gross market rent, then subtract the full PITIA on the home you are leaving. A negative result becomes a monthly debt.
• Offsetting a $2,226 payment takes roughly $2,968 in rent, because of the 25% haircut.
• Expect a six-month reserve requirement on the departing home if you have under 12 months of property management experience.
• FHA is stricter: you must be relocating more than 100 miles away and hold at least 25% equity in the home you are vacating.
• Converting ends your Texas homestead exemption, and the 10% appraisal cap expires January 1 of the first year you no longer qualify.

Can you rent out your Austin home and still qualify for the next one?

Yes, in most cases. A lender will let you count part of the expected rent from the home you are leaving, which offsets that mortgage payment in your debt-to-income ratio (DTI, the share of your gross monthly income that goes to debt payments). Lenders never count the whole rent, though, and the documentation they accept changed on September 2, 2026. Qualification remains subject to credit, income, and property review.

This matters more in Austin than it used to. Plenty of owners here financed or refinanced between 2020 and 2022 and hold a rate in the 3s, while Freddie Mac’s Primary Mortgage Market Survey put the 30-year average at 6.76% for the week ending September 10, 2026. Giving up a 3.25% loan feels expensive, so keeping the first home has become a common question.

What Fannie Mae changed on September 2, 2026

Announcement SEL-2026-08 moved departing-residence rental income into its own Selling Guide section, B3-3.8-05, and replaced the lease-based approach with a market-rent approach. The revisions apply to loans with application dates on and after November 1, 2026, and Fannie Mae encourages lenders to adopt them sooner, so you may meet the new framework on a file you start today. Three changes matter most:

• The lease stopped counting. The guide is direct about it: “Lease agreements are not permitted for any departing residence.” Signing a tenant early no longer helps your approval.
• Market rent gets documented three ways. Your lender obtains a complete appraisal report that includes market rents, or a Single-Family Comparable Rent Schedule (Form 1007), or uses market analysis tools such as Zillow, Redfin, or the MLS. With those tools, the lender must pull at least three comparable rental properties.
• Reserves became explicit. The lender must verify six months of reserves covering the PITIA on the vacated property when you have less than 12 months of property management experience.

One more piece catches people off guard. When qualifying rental income minus PITIA is negative, the lender adds that net rental loss to your total monthly obligations. Keeping the house can move your DTI the wrong direction.

How much of the rent will a lender actually count?

Lenders multiply gross monthly market rent by 75%, then subtract the entire PITIA (principal, interest, taxes, insurance, and any association dues) on the departing home. The 25% reduction covers vacancy, repairs, and management, whether or not you hire a property manager. A positive result is added to your income, a negative one to your debts.

Run it with Austin numbers. Say you bought in 2020, owe $315,000 at 3.25%, and your payment is $1,371 principal and interest, $640 in property taxes, and $215 in insurance, for a PITIA of $2,226. A comparable rental nearby supports $2,400 per month.

• 75% of $2,400 is $1,800.
• $1,800 minus $2,226 is negative $426.
• That $426 becomes a monthly obligation, not income.

Rent has to reach about $2,968 before it fully covers that $2,226 payment on paper. A property can cash flow in real life and still count against you in underwriting, since your tenant’s full check hits your bank account while the lender recognizes 75% of it.

The six-month reserve test uses that same PITIA. At $2,226 per month, a first-time landlord would need about $13,356 set aside for the departing home, on top of the down payment and reserves for the new purchase.

Conventional vs. FHA when you keep the old house

The loan you use for the next purchase decides which rulebook applies. FHA is far more restrictive here, and many Austin owners who assume they can keep the house and use FHA again find they cannot.

Requirement	Conventional (Fannie Mae)	FHA
Distance to new home	No distance requirement	Must be relocating more than 100 miles from the current principal residence
Equity in departing home	No equity requirement stated	At least 25% equity when there is no rental history since the last tax filing
Lease required	Not permitted as documentation	Lease of at least one year after closing, plus evidence of the security deposit or first month’s rent
How market rent is proven	Appraisal with market rents, Form 1007, or three rental comps	Appraisal evidencing market rent, using Form 1004 plus Form 1007 for a one-unit home
Reserves on the old home	Six months PITIA if under 12 months management experience	Governed by standard FHA reserve policy

Sources: Fannie Mae Selling Guide B3-3.8-05 (09/02/2026) and HUD Handbook 4000.1, last revised August 12, 2026. If the property already has rental history, FHA averages the income on your Schedule E instead, adding back depreciation, mortgage interest, taxes, insurance, and HOA dues. Veterans face separate entitlement questions covered in our guide to VA entitlement when you buy again.

What does converting cost you on Texas property taxes?

Renting out your Austin home ends its residence homestead status, and that carries a cost most owners underestimate. You lose the exemption itself, and you lose the appraisal cap that has been protecting you.

Texas Tax Code Section 23.23 limits how fast a homestead’s appraised value can rise: no more than 10% per year, plus the value of new improvements. Subsection (c) says that limitation “expires on January 1 of the first tax year that neither the owner of the property when the limitation took effect nor the owner’s spouse or surviving spouse qualifies for an exemption under Section 11.13.” Once the cap lifts, the appraisal district can move taxable value to full market value in one step. For an owner who held a home through several years of Austin appreciation, that gap can be substantial, and the tax bill follows it up.

There is also a filing duty. Under Section 11.43(g), a person receiving an exemption that is not claimed annually “shall notify the appraisal office in writing before May 1 after his entitlement to the exemption ends.” Skipping it can lead to back taxes and penalties. Our post on the Texas homestead exemption at $140,000 covers what it is worth while you still qualify.

Budget for insurance too. A homeowners policy is written for an owner-occupied home, so your carrier will move you to a landlord policy once tenants move in, usually at a different premium.

A framework for deciding

Keeping the house tends to work when the numbers and the paperwork both cooperate. Walk through these in order:

1. Does the math survive the 75% haircut? Divide your PITIA by 0.75. If neighborhood rents do not clear that number, keeping the home adds a liability to your next application.
2. Can you carry both payments if the rent stops? Six months of reserves is the lender’s test and a reasonable personal one.
3. How much does the tax cap save you? Compare your capped appraised value to market value on your latest notice. The larger the gap, the more conversion costs.
4. Is the rate worth protecting? A 3.25% loan on $315,000 is a real asset. A 6.5% loan with little equity usually is not.
5. Do you want the job? Being a landlord means turnover, repairs, and tax protests every spring.

If the answer to the first question is no, selling and moving the equity into the next purchase often produces a stronger approval. Compare the timing tools in our guide to buying before you sell in Austin, and check the Austin housing market page first.

Frequently Asked Questions

Do I need a signed lease to count rent from the home I am moving out of?

Not for a conventional loan. Fannie Mae Selling Guide B3-3.8-05, published September 2, 2026, states that lease agreements are not permitted for any departing residence. Your lender documents market rent with an appraisal, a Form 1007 rent schedule, or at least three rental comps instead. FHA still requires a one-year lease plus proof of the security deposit or first month’s rent.

How much rent do lenders count when you convert your home to a rental?

Lenders count 75% of gross market rent and subtract the full PITIA on the departing home. If the result is positive it helps your qualifying income, and if it is negative the loss is added to your monthly debts. A $2,226 payment needs roughly $2,968 in rent before the offset is complete.

Can I rent out my house right after I buy a new one?

Your existing loan documents govern that. Owner-occupied financing generally requires you to occupy the home as your primary residence for at least the first year, so moving out early can conflict with the terms you signed. After that occupancy period, converting the first home while you buy a new primary residence is a normal and permitted move.

Do I lose my homestead exemption if I rent out my Austin home?

Yes. The exemption applies to the home you occupy, so it ends when the property becomes a rental. The 10% annual appraisal cap under Texas Tax Code 23.23 expires January 1 of the first tax year no qualifying owner remains, which can expose years of accumulated value at once. Notify the appraisal district in writing before May 1 after your entitlement ends.

How many months of reserves do I need to keep my old house?

Fannie Mae requires six months of reserves covering the PITIA on the vacated property when you have less than 12 months of property management experience. On a $2,226 monthly payment that is about $13,356, held separately from the funds for your new purchase. Reserve requirements for the new loan apply on top of that.

Can I use an FHA loan for my next home if I keep my current one as a rental?

Only under narrow conditions. HUD Handbook 4000.1 requires that you be relocating more than 100 miles from your current principal residence before rental income from a vacated property counts, plus an appraisal showing at least 25% equity when the home has no rental history since your last tax filing. Many Austin owners moving across town will not meet the distance test.

Talking it through

Each of these decisions turns on your payment, your neighborhood’s rents, and your latest appraisal notice. At Mortgage Austin we can run the conversion math and the sell-instead math side by side so you see both outcomes before you list or sign anything. Schedule a discovery call and we will walk through your options together, no pressure and no commitment, just clarity.

Anthony Ferrando NMLS# 1919613 | Client Direct Mortgage NMLS# 1065732 | Licensed in Texas. This content is for educational purposes only and does not constitute a commitment to lend. Loan approval is subject to credit, income, and property qualification. Payment and rent figures are illustrative examples, not a quote, and results vary by credit, income, property type, and program. Guidelines are current as of publication and may change. This is not tax advice; consult a tax professional or your county appraisal district on homestead and appraisal cap questions. Sources: Fannie Mae Selling Guide B3-3.8-05 and B3-3.8-01 (09/02/2026) and Announcement SEL-2026-08 (September 2, 2026); HUD Handbook 4000.1, last revised August 12, 2026; Texas Tax Code Sections 23.23 and 11.43(g); Freddie Mac Primary Mortgage Market Survey, week ending September 10, 2026; Team Price Real Estate Austin market update, September 4, 2026.