Residential loan for investment property

2 Replies

In the scenario where a typical residential loan allow the borrower to live on the property for at least a year, if after 3months the borrower decides to rent the unit, how can that affect the loan? Is there any suggestion that you can provide?

Generally, the residential mortgage agreement will contain a paragraph like this: 

"Borrower shall occupy, establish, and use the Property as Borrower’s principal residence within X days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower’s principal residence for at least one year after the date of occupancy, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exist which are beyond Borrower’s control."

I do not know where the house is located or what law applies (and you should consider speaking with an attorney licensed in your state), but if your agreement contains a provision like this, then you should raise the issue with your lender.  If you are able to come up with a decent reason for not being able to live in the property, then the lender should (and may be required to) let you rent it out.

It is important to be upfront with the lender.  If you decide to rent it out after 3 months without the lender's permission, then you may be in breach of the mortgage agreement and that could trigger an acceleration clause, meaning that you would have to pay the entire loan amount in a short period of time.  

Again, all of the above depends on the specific language in your mortgage agreement.  Definitely read the agreement closely.