Mortgages typically last anywhere from 15 to 30 years. This is a significant amount of time to have a debt and be involved with a property. In some cases, due to life changes or financial difficulties, it might become necessary for you to move out of your mortgaged home and rent it. You might have to notify your mortgage lender if you plan to do this, depending on your contract terms.
You'll need to contact your mortgage company company if you want to rent your house, depending on the wording of your mortgage contract's occupancy clause. Some mortgages disallow non-owner-occupied dwellings entirely; others, such as FHA loans, require owners to live in the dwelling for a year before allowing them to rent their homes.
Mortgage Occupancy Clauses
Some mortgages specifically state that you must be the occupant of the mortgaged home. If your mortgage contract has a clause like this, you absolutely must notify the mortgage lender of your intention to rent. If the mortgage contract is silent about rental, you generally can rent out the property without a problem.
If you have an FHA mortgage, you'll have to live in your home for at least a year before you can rent it out.
Why to Contact Your Lender
Mortgage lenders want you to contact them about the rental of your property, and therefore include occupancy clauses in mortgage contracts for three reasons. The first reason is that lenders offer different types of mortgages — you can get occupancy mortgages for homes in which you intend to reside, and different ones for second homes and investment properties you intend to rent.
Each of these types of mortgages is associated with different risk rates, so the interest rate the lender offers to you connects directly to what type of mortgage you have. If you get an occupancy loan and then rent, you are asking the lender to give you an interest rate that isn't connected to the lender's current liability.
Additionally, lenders have a financial investment in your home; until the mortgage is completely paid off, they technically own part of it. The lender will want to protect this investment. The only real way the lender can do this is if it has some control over who enters the mortgage property. The mortgage lender must also be able to contact you about your mortgage if necessary. If you rent out the property, the lender will need your new address, even if it is comfortable with you renting the home.
Different Types of Insurance
Insurance companies offer very different policies for homeowners and landlords. If you rent your mortgaged home, you may need to switch policies or providers. Your mortgage lender will want to know what insurance you have, so it can guarantee that its investment in the home is protected in the event of a disaster.
The Bottom Line
Whether you legally have to tell your mortgage lender you are renting out your home depends primarily on the terms of your mortgage contract. Review the contract terms before listing ads for the property and converting it for rental. Be clear with the tenants about the conditions of your mortgage, as well; as they could be impacted by a foreclosure, even if they are model renters. Even if your lender does not require it in your contract, it is courteous to alert your mortgage lender to your plans.
- FinancialWeb: Can You Rent an FHA Home?
- Landlord Station: Will Your Current Mortgage Allow You to Move Out of Your Home and Rent It Out?
- Consumer Financial Protection Bureau. "What Is Private Mortgage Insurance?" Accessed Oct. 31, 2020.
- Internal Revenue Service. "Publication 936 (2019), Home Mortgage Insurance Deduction." Accessed Oct. 31, 2020.
Wanda Thibodeaux is a freelance writer and editor based in Eagan, Minn. She has been published in both print and Web publications and has written on everything from fly fishing to parenting. She currently works through her business website, Takingdictation.com, which functions globally and welcomes new clients.