Can I Rent Out My House Without Telling My Mortgage Lender?

Can I Rent Out My House Without Telling My Mortgage Lender?
Can I Rent Out My House Without Telling My Mortgage Lender?

As a homeowner, renting out your house can be a great way to earn some extra income and can help you pay down your mortgage loan.

Many homeowners are exploring this method to help with their mortgage payments, and earn themselves a little extra cash on the side.

However, if you are looking to rent out your property you will most likely have to inform your mortgage lender first.

Can I Rent Out My House Without Telling My Mortgage Lender?
You’ll want to do this to check that you aren’t breaching the terms of your loan – this can result in having your mortgage loan cancelled and being evicted from your home (and you’ll still have to pay off the outstanding debt).

Before renting your property out, your lender will need some important information before they sign off on any rental plans. It’s also a good idea to live in your house for a minimum of 12 months before renting it out so you can stay in good graces with your landlord.

If there’s any reason why you can’t, be upfront with your mortgage lender as they usually take any extenuating circumstances into consideration. It’s important to be honest to avoid being accused of occupancy fraud.

Evaluate The Terms Of Your Contract

The first thing you need to do is begin carefully reviewing your mortgage contract, as different mortgage loans have different terms. 

When you first apply for the loan, your lender will always ask how you intended to use the property. If you state you want to occupy the property personally, you’re less of a risk to mortgage lenders than those who invested in a property to rent it out.

Those with owner-occupied mortgages tend to have lower down payments and qualify for lower interest rates. 
But what if your intentions have changed? For example, you may have gotten a new job in a different state and it’s not financially viable to sell right now so you want to rent until the market changes. 

If your circumstances change and you want to rent but have an owner-occupancy, you need to contact your mortgage lender to discuss your situation. Some mortgage lenders will let you rent out your home without changing your existing rate and terms.

However, they may charge a fee, ask you to wait a certain amount of time, or they could even ask you to refinance. 

If there are no specific restrictions written in your contract referring to renting out the property, you should be able to rent out your home as you see fit. Your lender may require documentation that will ensure your mortgage is not put into jeopardy.

Tips To Rent Legally

It can be a lot more complicated to legally rent your home out when your mortgage is still being paid off, but with some planning it’s very possible. Here are some tips to rent out your home (or spare room):

Research the restrictions of your loan: To find out whether it’s possible to rent your home, research your loan type (owner-occupied, FHA) for any rental restrictions.

For instance, USDA loans don’t typically let borrowers rent out spare bedrooms. If you have owned your house for less than a year, you’ll also need to check the occupancy requirements before deciding to rent. 

Read your mortgage contract: Your lender can place restrictions on rentals, and can even ban them outright – read the fine print!

Tell your mortgage lender about renting: After researching your contract, contact the mortgage company to discuss renting out your property (even if there’s nothing in your contract disallowing rentals).

There may be some additional requirements that weren’t listed in your contract. For instance, they may require your tenants to have renter’s insurance.

Research landlord-tenant law: There’s a whole host of things that landlords can get in trouble for. Some of the most common reasons are discriminating against tenants during the application process, or not providing a habitable living space.

It’s important you understand your responsibilities and your tenants’ rights before becoming a landlord.

Look into capital gains consequences: Do some research on capital gains consequences. If you want to sell your house, you need to live as the primary resident for two out of five years leading up to the sale of the house to avoid capital gains taxes. 

Additional Requirements To Consider

It’s not uncommon for your mortgage lender to request additional insurance coverage for a property that is being rented, as tenants may frequently be moving in and out. Your lender may also ask your tenants to obtain rental insurance before they move into your property. 

You’ll also want to inform your lender of your new mailing address as soon as possible. This is so any critical documentation that applies to your mortgage will reach you and not end up in the hands of your tenants. 

Although renting can be quite a lucrative form of income, it’s important that you plan and save for the mortgage payments on your property.

Your tenants rent may be paying the monthly mortgage payments, but you need to be prepared for your house to sit empty in between tenants. Don’t risk missing a payment as this can result in penalties from your lender.

Can I Rent Out My House If I Have An FHA Loan?

You need to live in your house for at least one year before renting it out, unless you have any extenuating circumstances like needing to relocate for work.

However, if you only intend to rent out a spare room, or a multi-family property with more than one unit, you can rent them out before 12 months have passed. This is only under the condition that you will also be living in the property.

Can I Rent Out A Room In My House Without Telling My Lender?

Even if you’re just renting a room, you still need to check your contract and speak to your lender to make sure it’s okay to do it. Some lenders may refuse, and others may require more information or ask you to purchase extra insurance.

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