Can You Rent Your House Without Telling Your Lender?

Renting without your lender’s permission can have consequences

A couple looks at a home.
•••

FG Trade / Getty Images

Many people buy a home and expect to live in it for the foreseeable future. But sometimes, life situations change, and you may consider renting out the house for part of the year, or earning rental income by renting out part of the home you live in.

While you might assume it’s perfectly legal to rent out a home you own, stipulations in your home loan agreement might say otherwise.

Renting your house without telling your lender can even be considered a crime in some cases. Learn more about whether or not you can rent out your primary residence, and how it could impact things such as your loan terms and your taxes.

Key Takeaways

  • If you try to rent your house without telling your lender, you are potentially breaking the law.
  • Loan programs and lenders have varying rules about if and when you can rent your house after purchasing it as your primary residence.
  • Contact your lender about the option to convert from a primary residence to an investment property before you make any moves.

Can You Rent Your House Without Telling Your Mortgage Lender?

You can rent your house, even if you initially bought it to be your primary residence, but you’ll need to notify your lender. Just going ahead with your rental plans without contacting your mortgage company can have consequences.

Buyers who purchase a primary residence (as opposed to an investment property) get better loan terms and a lower interest rate. Lenders typically build specific occupancy rules into the loan agreement that can require you to check with your lender before renting your home.

Primary Residency vs. Investment Property Mortgages

A primary residency means you live in the home most of the year. Lenders usually offer more favorable terms on their home loans to people who plan to live in the residences.

An investment property, on the other hand, is a home you buy primarily so you can generate income by renting it out. Lenders usually have more stringent requirements when you borrow for this type of purchase, and interest rates typically are higher as well.

In some cases, you might buy a home intending to live there, but decide later on that you want to rent out the house. First, determine the set length of time you agreed to be the primary occupant when you signed your mortgage contract.

Many lenders require you to live in the home for one year for their loans with lower rates for your primary residence. For others, it might be indefinitely. If you’re not clear on what your loan dictates, and you begin renting out the home without telling your lender, you may be breaking a legal contract.

Occupancy fraud is when borrowers misrepresent their occupancy status. If you sign a loan agreement that requires you to live in the home as your primary residence while intending to use the property as a rental investment, it’s a crime.

Occupancy Rules Vary

Each loan program and lender has its own rules and restrictions vary. If you have an FHA loan, for example, borrowers must begin living in the home within 60 days of closing, and the home must be their principal residence for the majority of the calendar year. If you want to rent out a portion of the home, you may do so if it has multiple units, but you still must live there as an owner occupant.

VA loans have more complex occupancy rules since the program understands that military members may deploy at any time, so anyone with that type of loan will especially need to work with their lender.

Conventional loan programs are usually less restrictive after you meet the initial occupancy requirements. Still, you can contact the lender to check on specific rules in your mortgage contract about renting the home.

Think About Tax Changes

When you rent your house versus just living in it, your taxes get more complex. First, you’ll have to include your rental income as part of your gross income. In most cases, you can claim the expenses of your rental, including maintenance and insurance.

One other tax factor to think about is that if you rent out your home and decide to sell, there could be capital gains tax implications. According to the IRS, you must have at least two years of ownership and two years in the home as your primary residence in the five years before you sell in order to avoid the tax on any gains you make on the sale of your home.

How To Convert Your Home Into a Rental Property

If you decide you want to turn your home into an income stream, that’s certainly possible, as long as you follow these crucial steps.

Check your contract and call your lender

Depending on the type of loan and what’s in your contract, different rules about renting your home may apply. The same is true if you live in a property with a homeowner’s association.

When in doubt, contact your lender and/or HOA to ask what the procedure would be to convert your home into a rental property.

Work with your home insurance carrier to update your policy

If your lender allows you to rent out your home, you will have to add or change your homeowners insurance policy so that your rental property has adequate coverage, and you are protected from liability.

Learn about how your taxes may change

Consult a professional tax accountant for guidance with your tax reporting responsibilities as a landlord compared to your tax reporting as a primary occupant of the home.

Secure any necessary permits

If you are renting for the first time, you may need a rental housing permit that requires an inspection from your local government to ensure the space meets all safety requirements and standards.

Understand housing laws

If you’re going to be listing your rental availability, make sure you understand the Fair Housing Act. It prohibits discrimination because of race, color, national origin, religion, sex, familial status, and disability.

Also educate yourself about your city or county’s landlord-tenant laws so you can be prepared in the event any complications arise. You should also learn how to run credit checks on prospective tenants.

The Bottom Line

Renting your house can provide a reliable source of income, but make sure you do it legally. Don’t try to rent out your house without telling your lender, because you may be committing a crime if it goes against your loan’s terms.

Do your due diligence and confirm that you’ve met any occupancy requirements and are cleared to rent.

Frequently Asked Questions (FAQs)

How long do you have to live in your primary residence before renting it out?

The amount of time you must live in your primary residence before you can rent it is determined by your loan program. Each lender may have different requirements. One year is a common length of time a lender may require the home be a primary residence.

Is a home considered a primary residence if you start renting part way through the tax year?

Your home may be considered a primary residence even if you start renting it out in the middle of the year, but it depends on the length of time you lived there compared to how long you rented it out. According to the IRS, a home that is used for personal purposes during the tax year for more than the greater of 14 days or 10% of the total days rented to others is considered a residence.

Article Sources

  1. Chase. "Primary, Secondary and Investment Property: What Are the Differences?"

  2. Freddie Mac. "Primary Residence," Page 2.

  3. Federal Deposit Insurance Corporation. "Owner Occupancy Fraud and Mortgage Performance."

  4. U.S. Department of Housing and Urban Development. "Section B. Property Ownership Requirements and Restrictions Overview," Page 5.

  5. U.S. Department of Veterans Affairs. "Chapter 3. The VA Loan and Guaranty Overview."

  6. Internal Revenue Service. "Publication 527 (2020), Residential Rental Property | Internal Revenue Service."

  7. Internal Revenue Service. "Publication 523 (2021), Selling Your Home."

  8. U.S. Department of Housing and Urban Development. "Housing Discrimination Under the Fair Housing Act."

  9. Internal Revenue Service. "Know the Tax Facts About Renting Out Residential Property."