Mortgage 101: Renting Out a Mortgaged Property (Part 1)
- Lakeview Mortgage Bankers
- Oct 11, 2022
- 3 min read
You might be here because you are curious about supplementing your income by renting out your home or a room in your home. However, while you are paying off a mortgage, you’re not sure if this step is doable.
Yes, this is a possible action. Although, perhaps not if your lender forbids leasing or imposes strict occupancy requirements.
This guide will assist you in determining whether renting a home with a mortgage is the best option for you. Read on to learn and discover more about the possibilities of renting out a mortgaged property.
The Mortgage, the Lenders, and the Rules
No universal rule applies to all situations and lenders. The lender is interested in knowing how the loaned property will be used. You pose less of a risk than a tenant if you intend to live there. Owner-occupied mortgages are easier to qualify for, have a lower down payment requirement, and have lower interest rates.
If you lie about your intentions for the property when applying for a mortgage, you could be charged with occupancy fraud. In case you suddenly change your mind about what you should do with the property, make it clear with your lender.
You can rent your home if you have an owner-occupant mortgage. You must make contact with your mortgage lender. Some mortgage lenders allow home rentals at the current interest rate and terms. Some charge fees, have waiting periods or require refinancing.
Specific loan programs have loan program caps. If you have a USDA or FHA loan, you must live in the home for a year unless you need to relocate for work.
How to Rent Out a Mortgaged Property
Renting a home with a mortgage is possible with careful planning. Here are some pointers on how to legally rent out your home.
Look into loan restrictions. Check to see if your loan type (conventional, FHA, etc.) has any rental restrictions. USDA borrowers may not always be able to rent out spare bedrooms for extra income. Before you can lease your newly purchased home, check to see if your loan has any occupancy requirements.
Understand the terms of a mortgage loan. Rentals may be restricted or prohibited by your lender. Read your mortgage contract to become acquainted with its terms.
Inform your lender that you are renting. Following your research, contact your mortgage lender. Even if your mortgage contract does not explicitly prohibit rentals, you should double-check with your lender. Unwritten rental requirements could include the requirement for renter's insurance. Inform your mortgage company of your relocation so that you can continue to receive important correspondence and bills.
Learn about the HOA's rental policies. Some HOAs prohibit or restrict rentals, such as tenant screening. If you break the rules, you may be fined, so check with your HOA.
Learn your rights under the Tenant Law. Landlords who discriminate against tenants or fail to provide a habitable dwelling may face legal consequences. Before becoming a landlord, one must be aware of their obligations.
Consider the advantages. Think about capital gains. You must have lived in your home as your primary residence for two of the five years preceding the sale to avoid capital gains taxes.
Conclusion
To avoid contract violations and legal issues, renting a home with a mortgage necessitates additional planning and research. Before accepting tenants, check with your mortgage company to avoid occupancy fraud and other liabilities. Check your loan type for any restrictions or occupancy requirements. You can use this information to determine whether you can rent your home while still paying your mortgage.
If you’re looking for banks with the best mortgage rates, look no further. Lakeview Mortgage Bankers is your trusted team of mortgage professionals. Contact us and find an agent today!
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