With the rise of online rental apps like Airbnb, it’s becoming commonplace for homeowners to rent out their properties at least part of the year. Many homeowners choose to rent out a spare room or even their entire homes to help pay down the mortgage. Even though this may seem like a common practice, some lenders have strict rules regarding occupancy if you’re still paying down a loan. Here is a look at the legality of renting out a house with a mortgage and everything you should consider before finding a tenant.
Can You Rent Out Your House if You Have a Mortgage?
Yes, you can rent out a house you have a mortgage on, but you'll need to inform your lender to ensure you meet the necessary requirements. There is nothing against the law about renting your home while you still have a mortgage. However, different lenders have different rules when it comes to occupancy. So, while it may be legal, bringing in an outside tenant may violate the terms of the loan. In most cases, your mortgage lender will allow you to rent out your house as long as you have lived in it for at least 12 months before renting it out.
Not every mortgage is created equal. Many lenders prefer to rent to homeowners who will use the property as their primary residence because it’s less risky than an investment property. Those who have built some equity in their homes are far less likely to default than a tenant who may suddenly disappear and leave the landlord stranded.
Therefore, a mortgage on a primary residence tends to feature more favorable terms than a mortgage on investment property, such as lower interest rates and easier qualifications. Plus, you are expected to state your intentions for using the property on your application. If that use suddenly changes, there may be penalties. To find out the precise rules, you should contact your lender and ask about their policies on bringing in a tenant.
How to Rent a House With a Mortgage
Here are a few helpful tips if you are thinking of renting out your property to a tenant while you still have a mortgage.
1. Review the Terms of Your Loan
The first thing you should do is review the terms of your loan. If you have a common mortgage type, such as an FHA or VA loan, the terms should be available online. FHA and USDA loans, for instance, require the owner to occupy the residence for at least a year, unless under certain circumstances. So, it’s wise to do your research and find out if there are any specific rules preventing you from renting out your property.
2. Contact Your Mortgage Company
In addition to reviewing the loan terms, you should also consult your lender. Perhaps there was something in the fine print that you may have missed preventing you from renting out the property. Even if renting isn’t outright banned, they may have specific requirements for tenants. Plus, you’ll want to provide them with updated contact info if you’re no longer occupying the residence full time.
3. Consult Your Lawyer or Accountant
It may also be wise to have a conversation with your lawyer, business manager, or accountant. An attorney may have some advice on the local landlord-tenant laws that can help you avoid getting in trouble when searching for applicants. Plus, using your home as an investment property as opposed to a primary residence may have some tax consequences. So, you should consult your accountant before making any decisions.
4. Speak to Your HOA
If you live in a planned community or condominium building, you may want to consult the homeowner’s association about their rules regarding tenants. Even if your lender allows it, the HOA may have its own restrictions that you should be aware of to avoid penalties.
Renting Out a House With a Mortgage FAQ
Can I Rent Out My House if I have an FHA loan?
Yes, you can rent out your house with an FHA loan, but not right away. You won’t qualify for an FHA loan if you’re purchasing the property with the sole intention of renting it out. When you close on the home, you have to sign a statement confirming that you plan to move into the home within 60 days. Plus, you are also required to occupy the residence for at least 12 months after the closing. But, after those 12 months, you are free to rent it out if you so choose. There are also extenuating circumstances that allow you to legally leave in less than 12 months, such as relocating for work.
Can I Rent Out My House With a VA Loan?
You can rent out your home if you have a VA loan as long as you meet the lender's requirements, the most important of which is the occupancy requirement. Usually, that means the home was your primary residence for at least 12 months, so you'll only be able to rent the house after living there for a year.
Do I have to tell my lender if I just want to rent out a room in my home?
It depends on the individual lender, but it’s never a bad idea. While most lenders probably won’t care as long as you continue to occupy the home, they may have certain requirements or need information on the tenant. For instance, some lenders require any renters to have mortgage insurance in case their belongings are stolen or damaged. So, it never hurts to give them a quick phone call and review their policy on tenants, even if you’re just renting out a room.
What happens if you rent your property on a residential mortgage?
You will need to contact your lender and confirm they consent to the arrangement. Failure to do so could be considered a breach of contract and result in legal action being taken against you. Some lenders will allow it as long as you respect the loan terms. Others may charge you fees or adjust the terms of the mortgage to what is customary for an investment property. So, it’s essential to have a clear plan and understand the potential consequences before accepting a tenant.