Can Subletting a Room in Your House Affect Your Mortgage?

Before posting a "For Rent" sign, check with your homeowner's association.

Before posting a "For Rent" sign, check with your homeowner's association.

Renting out a spare room in your house can be a great way to add income that makes it easier to make mortgage, tax and insurance payments. You need to realistically assess expenses as well. These include taxes on rental income, additional insurance requirements and added upkeep. Beyond that, proceed with caution to avoid creating situations that could jeopardize your mortgage.

No Adverse Effect

Subletting a room in your house normally does not adversely affect your mortgage, providing that it's your primary residence and that you notify your insurance company, which may require that you add a "unit rented to others" rider to your homeowner's policy. These riders are usually relatively inexpensive. Check with your insurance agent, however, and notify your lender before committing to the sublet. While most mortgage companies allow you to sublet a room, they may require notification that you're doing so.

Co-op Apartments & Condominium Associations

If you live in a co-op building, you do not own your apartment. Instead, you own an undivided share of the entire building, and your right to occupy the apartment is subject to your following the rules of the co-op's board of directors. If it does not allow sublets -- many co-op boards do not -- and you rent out a room, you can be evicted. The consequences vary from one mortgage agreement to another, but the eviction may trigger a default and the cancellation of your mortgage. Some condominium associations have similar restrictions. In all cases, check with your co-op board or condominium association before proceeding.

Tenant Problems

In most states, the rules for tenant evictions make it difficult to promptly evict tenants who are unruly, noisy, argumentative, or who publicly abuse alcohol or drugs. It also takes time to evict a tenant who stops paying his rent -- sometimes many months, if the tenant actively resists. Bad tenants can jeopardize your mortgage. Clearly, a tenant who doesn't pay his rent turns the spare room from a source of income into a liability. The expense of eviction, added to the loss of rental income, can make it difficult for you to make timely mortgage payments. Disputes with neighbors over bad tenants can become legal problems with costly consequences. These problems are rare, and you can usually avoid them by doing both a credit check and a criminal background check of the prospective tenant before signing the rental agreement. Character references are generally less reliable.

Vacation Property

Vacation properties have special insurance requirements. Some insurance companies will not add a "unit rented to others" rider to a policy for a vacation property, if the tenant is on the premises when you're not. If you rent out the room without the rider you may be in violation of your policy, and the insurance company may cancel. This can trigger a mortgage default. In most instances, you can avoid the problem, but the insurance company may require that you take out an additional policy called landlord insurance.


About the Author

Patrick Gleeson received a doctorate in 18th century English literature at the University of Washington. He served as a professor of English at the University of Victoria and was head of freshman English at San Francisco State University. Gleeson is the director of technical publications for McClarie Group and manages an investment fund. He is a Registered Investment Advisor.

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