Renting out your home may affect your mortgage

By ,
Ask a Lender
August 21, 2015 | Updated September 20, 2017


Key Points

Things to do before renting your house

  • Carefully look over your loan terms to ensure renting is permitted.
  • Consult your lender or an attorney.
  • Ensure you have a valid insurance policy.

You may have an extra room in your home and are looking for a little supplemental income. You may be about to move into a new house, but are looking for a way to keep your current one and get help paying off your mortgage. You may have just stayed for a weekend in a short-term rental and figured that is something you want to do with your house.

Whatever the reason, you may be considering renting out your house — or part of it. Be careful before you take the rental plunge, however, because it may have implications for your existing mortgage.

Long-term rentals

Mortgage rates are typically lower for homes that are used as a borrower's primary residence than for homes that will be used for another reason, including as rental property.

Because of this, some lenders — and some mortgages — prohibit borrowers from renting out their homes. Others may require borrowers to live in their house for a certain period of time (often one year) before allowing the home to be rented. Sometimes, this language will be written into the loan agreement, or it may be in a separate affidavit that the borrower is asked to sign.

Although lenders may not check frequently to make sure every borrower is still living in their home, they may be alerted by a necessary insurance switch. Before renting out their house, homeowners need to switch their insurance to a landlord-insurance policy, and lenders would be made aware of such a switch.

If you are buying a new home, you may be able to count your rental income as qualifying income toward your new mortgage. To do this, you may need to have received rent for a certain period of time before it will be counted as qualifying income.

Before renting out your house, take a close look over your loan documents to see what is allowed. If you are at all unclear, you may want to ask your lender for clarification, or consult with an attorney. Otherwise, you may risk violating the terms of your mortgage.

Even if you are allowed to rent out your property under your current loan terms, it is often best to tell your lender of such a move to ensure important documents and news related to your mortgage are sent to your new address, and not to your tenants.

Short-term rentals

Short-term rentals have become incredibly popular in recent years, as more and more travelers are eschewing hotels in favor of someone's home — or, perhaps, a room within that home.

Many lenders may be even less likely to check if their borrowers are offering these types of rentals, but it still is worth looking over your loan agreement, or asking your lender, to see if such rentals are prohibited.

Insurance can be tricky when dealing with short-term rentals, because homeowners insurance may not provide full coverage for mishaps that occur when a renter is staying in your house and landlord insurance may not be practical for brief, occasional rentals. And an insurance dispute could raise a red flag for your lender. Should you want insurance to cover such a scenario, check with your insurance agent or contact the company coordinating the rental, given some do offer insurance policies specific to this lodging-market niche.

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