You're a homeowner who's decided to pursue a new opportunity miles from home. You still owe the bank for your house and can't sell it in time. Renting it out seems like a good solution. Depending on your mortgage, it may not be as clear-cut as you think.Conventional mortgages will state how long you must occupy your house before you rent it. If you do decide to lease, you may need to add a landlord policy to your property insurance.
If you have a mortgage from the Federal Housing Administration, it comes with certain restrictions. Let's say you just moved into your house six months ago. You'll be breaking the terms of your mortgage if you lease. FHA mortgages restrict you from leasing your house for the first year. Your year starts on the first day that you move in. If it has been more than a year since you first moved in, you may lease your house. You must still pay your mortgage payments on time, even if the house is empty.
If you own a home with a Veteran's Administration mortgage, the rules are similar to an FHA loan. The government backs VA loans to help make housing affordable. VA mortgages do not exist for the purpose of making real estate moguls. You cannot use a VA loan to purchase property that you intend to rent. Your intention must be to personally live in the home. You have 60 days to occupy the house once you sign the mortgage. Pay attention to the occupancy clause, which will tell you how long you need to live in the home before you rent.
Rent to Own
Consider a rent-to-own agreement if you've met your lender's occupancy requirement. Instead of just renting your house, your tenant pays an option premium, which gives her the right to purchase the home at the end of the lease. A rent-to-own agreement usually lasts longer than the standard one-year lease. Whomever you decide to rent to gets a chance to build up equity in the house. You and your tenant agree on the home's purchase price when you sign the lease. The money you earn from the sale must cover the outstanding balance on your mortgage.
If your mortgage goes into foreclosure while you're renting the house, you and the bank can't just kick your tenants out. Federal law allows renters to stay in a foreclosed property through the end of their lease. If you have a month-to-month lease or a verbal contract with your tenants, they can stay 90 days after the bank gives an eviction notice. Your tenants must still pay rent while the house is in foreclosure if they want to stay.
- Financial Web: Can You Rent an FHA Home?
- The Mortgage Professor: Lease-to-Own House Purchases
- VA Loans: VA Loan Guidelines; The Law On Occupancy
- Bankrate.com: Can't Sell Your Home? Consider Renting
- CNN Money: Your Landlord Got Foreclosed. Do You Have to Go?
- Bankrate.com: Renting Out a Home? Get the Right Insurance
Helen Akers specializes in business and technology topics. She has professional experience in business-to-business sales, technical support, and management. Akers holds a Master of Business Administration with a marketing concentration from Devry University's Keller Graduate School of Management and a Master of Fine Arts in creative writing from Antioch University Los Angeles.