Bought As Primary Res - When Can I Rent it??

Question

Hi all,

I purchased this condo as my new primary residence with the intent of living there. I got a good deal on it. But I have a friend who REALLY needs a place to rent with his girlfriend. They have good credit and are clean, so I wouldn't mind renting to them. I have another home to live in.

My question is what is the risk of renting to them shortly after I close on the property as my primary residence? I understand I would have to tell the lender and the insurance company, and have them get renters insurance...but are there any negative implications of doing this?

Anyone who has experience with this and can provide input is appreciated.

Bill B. · Answer

Because the utilities would be in a different name, your checks would have a different address, your drivers license would have a different address. The address the statements are sent to would be different, your registered voting address would be different, the address on file for your bank and employer, etc...

I’m not saying all those things would be obvious to the bank (other than the statements, and the year end tax forms. And now that I think of it, the landlord insurance policy instead of homeowners and the non-homesteaded property taxes (Both of which they would receive, and inspect while paying, also with a different address). So maybe only those 4 or 5 things would be obvious.) I’m just saying when they notice those 4 things, all the rest just prove you’re guilty of mortgage fraud and provide an obvious start date to it being a rental.

Carson P. · Answer

@Nicolas Gaspari

Not recommending this but if it truly is your friend, leave your mailing address the same and have him move in and collect your mail? Once again, not advising you on how to commit mortgage fraud.

The more preferred route would be to email your mortgage company and inform them of your change in lifestyle plans and see what they say. Make sure to get it in writing though. I can’t imagine you are the first person to buy a house and then have second thoughts if you want to occupy it for a year or not!

We are doing this currently with a house we bought. We got a good deal and received an awesome interest rate too because we are owner occupiers. However, the house isn’t perfect for our situation so I am looking again. If we find a Different house to buy I can’t imagine the lender saying you can’t do that. I will email them if and when the time comes. Happy investing!

Nicolas Gaspari · Answer

@Bill Brandt Thanks for your input Bill. I plan on doing everything by the book, but I'm curious why you think it would be obvious in the eyes of the mortgage company that I'm not living there?

Bill B. · Answer

If it’s been more than a year, no problem. Otherwise there’s a 90% chance you signed a document saying you would live there for at least a yer, in exchange the mortgage company gave your a lower rate, lower downpayment and maybe lower costs.

It will be obvious if you’re not living there (commuting mortgage fraud) so definitely don’t just move out and rent it in the first year. Then the question will come up where will you move to? Buying another primary will obviously be a no-go for at least that year maybe longer. So if your plan is to buy another property just buy that as a rental. If you move back to where you were previously living that will just make them doubt your intent rather than be able to prove it.

Why don’t you let your friend who REALLY needs a place to live rent the “other house you have to live in.” That saves you all the effort of moving your stuff again and changing all your address info again. As I’m sure we all agree all this didn’t randomly happen between your closing and the time you moved in.

John Mocker · Answer

Nicholas,

You are correct that you need to inform the Insurance company of the change from owner occupied to tenant occupied.  Most likely the company will have to rewrite the policy to a new form (there are some that use the same form but most would change it to a Dwelling/Fire form).  Regardless of how well you know the renters, it would be a good time to consider increasing your Liability coverage with an umbrella.  Also, I would consider including Personal Injury Liability (Libel, Slander, wrongful entry, etc.  Lastly, I find that many condo policies do not have the proper coveage for the amount of building coverge you need.  The vast majority of the building is insured by the Condo association but there are usually parts that you need to insured (could be the sheet rocking, cabinets, fixtures, etc.).  You & your agent need to review your condo association bylaws and declarations to see what is required.

Anna Laud · Answer

Hi Nicolas!

You may end up benefiting from doing this actually- and I will get to that part.

You should be able to review your montage contact and see if there are any rental restrictions that would apply. This may or may not be something then that you would be required to let your lender know about (but might still consider doing for a perk)

If your lender has a written in rental restriction, it’s likely they will want information on your renters- odds are if they do want any info, they have a system in palace for screening them on your behalf (and theirs), it might be beneficial however to draw up a quick ‘mock’ application you can email in quickly right after the call to speed things along (just credit info, rental history, income- go the extra mile here with a couple of references if your type “A” personality to keep lender happy- BIG bonus if from previous landlords)

This might be the only ‘next steps’ required on your part as well- so you could save yourself time here by being ahead of the game.

As far as getting renter’s insurance - your renters need to do this on their own, and that shouldn’t fall on you (or pull from your own personal resources/affect your personal insurance rates) apart from maintaining homeowners’ policy as you have now.

The big perk in providing your lender with this news (apart from staying on the right side of any outlined terms in your mortgage contract) will be in time (depending  on how long your friends rent for) you could qualify for a higher loan amount on another loan as you’ll be able to show more income

If this were to be a long term situation, it might be best to consider transitioning it into a lease with option, which I’m sure you’re very familiar with given your profession- especially if the rent will cover the monthly mortgage payment.

In doing this you would also be able to have your friends cover major expenses that come up (if you've written it in contract accordingly {i.e. they pay up to x amount for repairs, or until a threshold is met for an expense such as deductible on insurance {just keeping in mind you’re still on the line for property taxes, unless you adjust their monthly rental amount}, only worth mentioning as their down payment on the front end of the deal, you could save as your down payment on a new place (again maybe qualifying for a higher loan amount) and could help you in the long run)

As for negative impacts- again it's possible to be a loan term specific situation, but it does seem like it could be a very positive impact to be had

Hope this helps = )

Bought As Primary Res - When Can I Rent it??

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