Can I Rent out a Home with a Mortgage? 5 Important Steps
Last Updated Oct 16, 2023
There are some very lucky homeowners who locked in interest rates back at record-lows. If that's you, you'll think twice before giving that up! This common scenario is creating a new wave of ‘accidental landlords’, who have decided to rent out their home while living somewhere else.
But can you rent out a home with a mortgage? This question could be more important than you realize. Most lenders have rules and criteria around renting a home they have financed. So before you hand over any keys, this guide will look at five steps you need to take to legally rent out a home with a mortgage.
Step 1: Check your paperwork
When you applied for a mortgage, you would have to account for the intended use of the home. It’s likely you told your bank you intended to live there and the interest rate/lending criteria was set on this basis.
It may seem innocent enough to change your mind, but stating on an application that you intend to live in a home that you are buying as an investment property is considered mortgage loan fraud. This is why the first step in your research process is to read over the fine print of your mortgage and check the restrictions on the type of loan you have.
Most lenders will allow you to rent out a home once you have lived there for 12 months or more — but it’s important to check your own contracts and conditions before proceeding. While you’re checking the fine print, make sure your HOA doesn’t restrict rentals.
Step 2: Notify your bank or lending institution
This leads us to step 2: Be forthcoming with your lender about your intentions to rent out the home. This will immediately clear up any possible misunderstandings about your mortgage agreement. The lender may need to discuss or alter the terms of your agreement to allow you to rent out the home.
This also gives you the opportunity to discuss your circumstances. For example, some loan programs such as a USDA, VA, or FHA loan restrict renting out a home within the first year, but may be able to waive this if you need to move for work.
Step 3: Conduct an accurate rental cash flow analysis
Once you know that you can legally rent out your home, it’s time to do the math.
Your rental cash flow won’t be your rental income minus the mortgage repayments. There’s a lot of expenses, management and maintenance costs you’ll need to take into account. You may be able to claim your mortgage interest on tax, but you’ll also have to pay income tax on any earnings. You’ll also need to account for vacancies, capital gains tax, and depreciation.
It’s always wise to discuss your financial situation with an accountant to understand your gross operating expenses and the tax implications of renting out your home.
Step 4: Change your insurance
If you have homeowners insurance, it’s time to make a switch. Homeowners insurance only covers owner-occupiers, so you will need dedicated landlords insurance for a long-term rental. Expect to pay an average of 15-20% more for a landlord insurance policy than you would for standard homeowners insurance. While more expensive, the right policy can protect your asset, provide liability coverage and even cover loss of rental income.
If your home is looked after by BelongPRO, we offer dedicated insurance for rental homes right in the Belong app. You can even choose to deduct monthly repayments from your rental income to simplify your cash flow.
Step 5: Outsource the heavy lifting
The final step in turning your mortgaged home into a long-term rental is to decide how you want to manage the home. Belong regularly encounters homeowners who feel like they “got it wrong” the first time, or took on more than they bargained for.
As a company who works with homeowners who are looking for a better alternative to self-managing a rental or are ditching property management, we hear a lot of gripes! Things like “I didn’t realize I would be taking on another part-time job”, or “It became really hard to chase rent when my tenant stopped paying”.
One of Belong’s specialties is working with homeowners that find themselves on the rental market unexpectedly or are taking the challenge of rental home management on for the first time. We offer financial security and peace of mind for homeowners with guaranteed rent, 24/7 support (to you and your residents) and a range of innovative services not available with traditional property management.
Turn your home into a rental, without the worry
Belong looks after rental homes, but we’re no old-school property management company. Think of us more as a technology company with a human heart. Where long-term renting meets hospitality.
Learn more about BelongPRO and see why thousands of US homeowners are ditching outdated Property Management in San Francisco, San Diego, Los Angeles, Austin, Tampa, Jacksonville, Salt Lake City, Seattle, Spokane, Concord, Berkeley, Orlando and many more.
About the author
Mel Kershaw is a Content Lead at Belong. With an extensive background working with technology companies including Eventbrite and Yelp, she’s always looking for ways to create educational and informative articles that simplifies tech and solves problems for her audience.