We own our current home, we are seeking to rent this home, and purchase ( build ) a new home. Can you provide correct directions to properly do? Lender stated this eliminates our debt on credit report, to free up debt to income ratio

What is the status of the new home purchase? Generally you wait until you close on the new home then put the current one up for rental. Of course this could affect your ability to get a loan.

In that case, you might consider signing your current home to an LLC and then renting it. But I would definitely consult with a real estate attorney first.

And no, merely "renting" a home does not remove it from your credit report, selling it does.

I have owned many rental homes, and when I borrowed money to buy them every home shows up on my credit report as a debt.

Of course the rental money you have coming in, is income.
But the loans are now investment property