Renting your house when you mortgage dosen't allow it

[steppinthrax]

I have a mortgage that dosen't allow renting or using your home as a vacation home. I was told that many lenders don't care what you do, just that they get their money. Is this so? I want to rent out my primary home and purchase another.

 

[rudder]

As long as you qualify for the credit. Obviously you cannot list that rental income.

 

[PlasmaBomb]

I have a mortgage that dosen't allow renting or using your home as a vacation home. I was told that many lenders don't care what you do, just that they get their money. Is this so? I want to rent out my primary home and purchase another.

That is why they don't let you...

because people can be stupid and overextend themselves and then fail to keep up repayments (because they couldn't rent it out).

If you want to purchase a new property get a rental mortgage on it (ie. the bank knows you are purchasing to let).

As rudder says if you qualify for credit and the bank doesn't know *meh*, you can't list the rental of your house as income for the mortgage though...

 

[DrPizza]

That is why they don't let you...

because people can be stupid and overextend themselves and then fail to keep up repayments (because they couldn't rent it out).

If you want to purchase a new property get a rental mortgage on it (ie. the bank knows you are purchasing to let).

As rudder says if you qualify for credit and the bank doesn't know *meh*, you can't list the rental of your house as income for the mortgage though...

You MUST list the rental of your house as income. Who cares what the bank thinks - it's what the IRS thinks. Also, I am currently doing this & the bank hasn't had a problem with it, as long as I keep making my payments. Also, to get the mortgage on the 2nd house, I had to show a signed lease for the first house that I was renting out. Oddly, this left me "homeless" for a couple of weeks - we had to move out before we were able to move into the new place.

The bank you get the mortgage on the 2nd house from isn't going to care what you're doing with the first house, as long as your income is adequate for that new mortgage. Thus, they WILL want to see the income from rent (hence the lease.)

 

[OCGuy]

You have to live in your home for 6 months if you obtained an Owner Occupied loan.

In reality, they rarely send door knockers out, and it will usually be after the investor purchases the loan from your lender. This is usually 1-4 weeks after the loan initially funds.

You can rent it out and buy a new home Owner Occupied as well, but you will have to prove 30% in equity in your current home to be able to use the rental income in qualifying on a Fannie or Freddie loan.

If you do not have 30% equity, you will have to be able to support both PITI payments with your income.

 

[TubeTote]

Hi,

I'm an insurance broker so please heed my warning...

I don't know anything about the bank loan aspect of this, but from an insurance standpoint, your home is NOT COVERED by a regular homeowners policy should you rent the dwelling out. Read your contract and you will see this is true. Your claim would be denied, and there would be no legal recourse since you are not providing accurate information to the insurance company. When you purchased your homeowners policy, there was a fraud form you signed which is an industry standard.

If you should decide to rent the home, you will need one of two policies...

A DP1, DP2 or DP3 if you are renting with a standard one year lease. These are sometimes called 'dwelling fire policies'. These do not cover vacation type rentals, so be certain of your intentions before purchasing a policy. DP3 is the best form and the most expensive, and is the most recommended since it provides the best possible coverage for a landlord. Be aware that not all companies offer a DP3, so shop around.

If you should decide to rent your home as a vacation rental, you must purchase a specialty policy. These are usually brokered through Lloyds of London, and usually cost about 50% to 75% more than a standard dwelling fire policy. This is due to the fact that you have a much higher liability exposure with multiple renters coming and going.

Make sure that you get the right insurance, or you are setting yourself up for a disaster should a claim arise. One other consideration is that when you switch insurance policies or companies, your lender is notified.


Peace~

 

[DrPizza]

Hi,

I'm an insurance broker so please heed my warning...

I don't know anything about the bank loan aspect of this, but from an insurance standpoint, your home is NOT COVERED by a regular homeowners policy should you rent the dwelling out. Read your contract and you will see this is true. Your claim would be denied, and there would be no legal recourse since you are not providing accurate information to the insurance company. When you purchased your homeowners policy, there was a fraud form you signed which is an industry standard.

If you should decide to rent the home, you will need one of two policies...

A DP1, DP2 or DP3 if you are renting with a standard one year lease. These are sometimes called 'dwelling fire policies'. These do not cover vacation type rentals, so be certain of your intentions before purchasing a policy. DP3 is the best form and the most expensive, and is the most recommended since it provides the best possible coverage for a landlord.

If you should decide to rent your home as a vacation rental, you must purchase a specialty policy. These are usually brokered through Lloyds of London, and usually cost about 50% to 75% more than a standard dwelling fire policy. This is due to the fact that you have a much higher liability exposure with multiple renters coming and going.

Make sure that you get the right insurance, or you are setting yourself up for a disaster should a claim arise. One other consideration is that when you switch insurance policies or companies, your lender is notified.


Peace~

Yep. At least that's how we understood it. Our agent handled all that stuff. In NY, if you have more than one home, they all have to be on the same policy. Apparently this is to prevent exactly what you described - this way, you're more likely to be insured appropriately. Also, it's a pita to find someone who offers a policy that covers a farm & a rented house.

 

[TubeTote]

One other thought...

For my clients who rent homes, I always recommend that they require their tenants to carry renter's insurance. Renter's policies are typically very inexpensive, sometimes just a few bucks per month if they use the same company to insure their auto. I have even seen a few cases where it is actually cheaper for the client to have an auto and renter's policy together than just the auto alone.

Every state will have different laws regarding this, and you may not be able to require renter's insurance legally. In Colorado, it's legal, and even apartment complexes often require proof of renter's insurance before a tenant can move in.

Hope this helps.