You can become a landlord by renting out your home instead of selling it. Alternatively, you may rent it out solely because you haven't been able to sell it. In both cases, if you need to refinance to lower the interest rate or pull out cash, you can do so before renting it. As a matter of fact, refinancing before renting is probably easier and less costly.
When you refinance your mortgage loan, you replace your existing loan with a new one. Homeowners typically refinance when rates drop low enough to justify the new loan closing costs. Lower interest rates can lower your monthly mortgage payment by a few hundred dollars, depending on your starting payment and the difference in rates. Some homeowners refinance to replace a problematic loan with a new one or to pull cash out to buy another property or start a small business.
When you refinance as a homeowner instead of a landlord, you will typically have lower interest rates and a higher allowable loan-to-value. For example, you may need to have an 80 percent LTV for a rental property, but could have up to a 95 percent LTV on your personal residence. The loan agreements will likely state that you use the home as your primary residence and intend to continue as an owner occupant. Whether you remain in the house for three more years or three more months, you can meet occupancy loan condition by living in the house at closing, when you sign the documents.
Exception -- Special Programs
If you refinance under a special government program, your loan documents or deed of trust may say you must remain in the home for the loan to remain in effect. This is rare, but does happen. For example, in lieu of a traditional down payment, some special loan programs provide you with a zero percent loan for a percentage of the home's value. Over a five- to 10-year period, the lender or lending partner forgives a portion of that zero percent loan each year until the loan balance equals zero. These typically will not lead to the loan being called if you move out, but will require you to pay back the remaining zero percent loan balance if you are no longer the primary occupant.
You can reach out to a mortgage broker instead of a direct lender. A broker acts as an intermediary, akin to a real estate broker, and so may be more likely to act in your best interest than a direct lender in this case. Asking your lender directly could send up a red flag that you intend to move immediately, but this rarely occurs when asking the same question of a broker. That broker can also help you review any loan documents to ensure there are no hidden issues that could cause problems for you later.
Tiffany C. Wright has been writing since 2007. She is a business owner, interim CEO and author of "Solving the Capital Equation: Financing Solutions for Small Businesses." Wright has helped companies obtain more than $31 million in financing. She holds a master's degree in finance and entrepreneurial management from the Wharton School of the University of Pennsylvania.