Buying A Home
daniella2727
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If you rent out your home...
did you tell your mortgage company? did they change your rate?
I've lived in our town home for 4 years and am considering renting it out.
did you change your home mortgage insurance to a landlord policy?
what are the in's and outs?
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Re: If you rent out your home...
Do your mortgage papers require you to tell them? Does your mortgage specifically prohibit renting the house out? It's permitted with our mortgages, but even then we sure as hell didn't volunteer the information.
Yeah, yeah, some nestie on here is gonna get up on her high horse and say we're cheats and frauds and caused the mortgage meltdown, but WTFever. We've never missed a payment and what they don't know won't hurt them.
But yes, we absolutely told our home insurance company. If anything happens to your house and it's not your primary residence, they WILL deny you coverage, period, end of story. I saw an insurance company once refuse to pay for an 80 year old widow whose house burned down because she spent 3 nights a week at her daughter's; they sure as hell aren't gonna pay for you when you're living somewhere else.
We have a landlord policy that our company calls a "fire policy." It, duh, covers more than fire, but that's their term for structure- and liability-only coverage, so if your company also uses that term, don't get thrown off. I think it's about $100/yr more expensive than when we were living there, the company using the logic that tenants don't care for property like an owner does.
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We did not tell our mortgage company. Most situations do not require it, and I'm not sure a situation exists (although I'm sure someone can correct me if I'm wrong), in which the lender will change your rate if you change your property to a rental. Rates are higher for rentals, but only when you're starting off with a new loan. I know there are rare situations that do not allow conversion to a rental (usually down payment assistance, or other forms of assistance) for a specific number of years. You can have a mortgage broker pull title records to find out if any of those situations exist for you and/or review previous loan closing docs.
As other PPs said, you MUST change your insurance policy to a landlord policy. Ours ended up being a few hundred cheaper as a rental, and covers structural damage ("fire coverage"), vandalism, liability (very, very important), unearned rent during a claim, etc. Once you become a landlord, I'd recommend looking at an umbrella policy too. We have $1mil worth of coverage for everything we insure (2 rentals, current residence, cars, trailer, etc) for less than $25/month.
Thank you all for your response. Our mortgage payment includes the Principal, interest, taxes and home insurance. My concern is that when I change the policy from home insurance to landlord insurance, that would automatically ping the mortgage company.
I have no idea if there are restrictions in my mortgage...It is a FHA mortgage and I owned the property for 4 years.
Insurance rates go up (you file a claim; costs go up from all the tornadoes and hurricanes across the country) and down (you add a policy or do something else to qualify for the perk) all the time. It won't alert them. We currently own 3 houses and our escrow amounts on each house change every year, though it is most often from taxes, it's occasionally from insurance.
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We did not tell our mortgage company; we're not required to under the terms of the mortgage.
We did tell our insurance carrier because we switched from a regular homeowners policy to a policy meant for rental properties. But we also don't pay our insurance or taxes out of escrow, we pay them ourselves, so doing that had nothing whatsoever to do with the mortgage company.
I had to tell them because I had to get their permission per the terms of my mortgage.
Then, once they approved, I called my insurance company and modified it to a non-owner occupied policy. This is my home insurance but not my home mortage insurance. Home mortgage insurance is PMI, and that is different than the insurance you pay in case your house burns down.
Be careful. If your mortgage terms doesn't allow for you to rent it out, they can foreclose on you even if you are making your payments.
Typically, FHA requires the property to be owner-occupied for 3 years. If you've owned your place for 4 years, you should be fine to rent it out.
I rent a home I bought with an FHA mortgage, I lived there for 3.5 years before renting it. When we were buying our current home, we asked the mortgage broker we worked with on that deal about the FHA loan on our previous home (rental) to see if we needed to make any changes there. He said that since I had satisfied the 3-year owner occupancy clause, I was now free to rent the property.
One thing to note is that you will not be able to refinance the rental home with a another FHA loan. FHA offers a great streamline refi program that doesn't require an appraisal. However, you can not get an FHA loan on a rental property. You can keep your current FHA loan on a rental because you bought the home with the intention of using it as your primary residence and you've satisfied the 3-year owner occupancy rule. But, you can not get a new FHA loan on the property once it becomes a rental. After it's a rental, you would have to refi to a conventional mortgage, and that's when interest rates will be higher.
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