When you move out and rent your property, your home changes from a primary residence to an income property. Some lenders require that this change get filed in their system, which may cost you a fee but will have no other effect on your existing mortgage loan.
Your mortgage remains your responsibility when you rent out your home, so your payment amounts and schedule do not change. Any changes are directly related to the type of mortgage you have, the specific contract terms of your loan and your lender's company policies. Find all of the paperwork you received when you bought the home and read through it carefully, then set up an appointment to talk to your lender about what will happen to your specific loan when you rent out the property.
Your mortgage paperwork will tell you whether or not your mortgage has a clause regarding owner occupation. Some mortgages require that the owner occupy the home for a certain amount of time, particularly if your mortgage type had low introductory payments set to increase over time. Government-subsidized loans, such as VA and FHA loans, also require owner occupancy. If your mortgage has an occupation clause and you have not yet fulfilled its conditions, you may need to refinance the home to change your mortgage type. Otherwise, you may not be legally able to rent out the home.
Mortgage payments often include property taxes and homeowner's insurance, paid from an escrow account your lender maintains. As a landlord, you can change your insurance policy to a rental property policy. This can reduce your premium since rental policies cover the structure but not your renter's personal property. You also need to notify your county assessor about the change in your property's status from owner-occupied to renter-occupied, which may affect property taxes. The insurance agency and tax assessor’s offices will communicate the change in rates to your mortgage company, so your mortgage payment amount may eventually change to compensate for these adjustments.
Don't try to hide the change in occupancy from your lender in hopes of avoiding fees or changes to your mortgage conditions. If you break your loan agreement terms, you will be subject to legal action by the lender. Instead, ask questions about your options. On the other hand, don't let the lender talk you into refinancing your mortgage if it is not absolutely necessary. Refinancing can cause additional out-of-pocket costs to you and may lengthen your overall mortgage term. The Federal Trade Commission does not recommend renting out your home if you are behind on your mortgage unless you can charge enough to catch up on your payments and maintain them long term.
- Federal Trade Commission: Mortgage Payments Sending You Reeling? Here's What to Do
- MSN Real Estate/Kiplinger; What to Know if You Rent Out Your House; Kimberly Lankford
- "SmartMoney"; Should You Rent Out Your House or Sell It?; Aleksandra Todorova; July 2010
- VA Loan Guidelines: The Law On Occupancy
- FHA.com: Frequently Asked Questions
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