Rental Basics in 19406>Question Details

HK, Home Seller in 19406

I am planning to rent out my house/mortgage

Asked by HK, 19406 Sun Jan 4, 2009

I am planning to rent out my house due to the relocation. Am I obligated to inform my mortgage company even though I do not have a plan to purchase another house for a while ? If so what should I expect in the rate change ?
Thanks. HK

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I did the same what you are trying right now. I had to move but didn't want to sell my current home due to market conditions. So i rented my own house and myself rented another house. So i am both a landlord and a tenant.

I had to do the following:

1. File the non-homestead form with the city. My taxes went up 50%.
2. My previous home insurance company was AAA. AAA doesn't provide coverage on rental properties. So i had to switch to Statefarm.
3. I also had to update my contact information on gmac website so that i would get my tax related documents at new address.

Another issue you might face is that when you rent out your house, you may not able to refinance it. Due to mortgage meltdown, lenders are refinancing rental properties with 75% max LTV.
1 vote Thank Flag Link Sun May 31, 2009
Hi HK, I am also a mortgage originator so I would like to help out with this. It's true that it is common practice that people do not inform their mortgage company that they will be changing their status from primary residence to rental. In general your mortgage company is concerned with 2 things. 1. that you continue to pay your mortgage, and 2. that you maintain insurance on the property to protect their investment.

If you wanted to be 100% covered, I would reccomend that you review the closing documents you recieved when you went to settlement on your property. There will most likely be a clause in there that states when you must take possession of the property and how long you must live there for it to qualify as your primary residence. Also look to see if there is any clause that provides for a rate increase or any other type of action if you were to rent the property out...I would assume there isn't one. If all else fails, call the mortgage servicing company that is now processing your mortgage payments and ask them if there would be any consequences if you rented it out. I think you will be fine.
-Dale

Dale Archdekin
Realtor
Coldwell Banker Preferred Old City
223-225 Market St.
Philadelphia PA 19106
Direct: 215-370-1236
Office: 215-923-7600
Fax: 215-940-8207
http://www.cbpref.com
Web Reference: http://www.liveinphilly.net
1 vote Thank Flag Link Sun Jan 4, 2009
Hello;
We have owned a condo for years and refi'ed it while we were owner occupied. It has been almost four years now and there has not been questions from the mortgage holder. Here is my question, we want to refinance with the same credit union here in California. If we notify the credit union of our intentions and disclose the property is now a rental, and for some reason do not go through with the loan refi, will the credit union call in the loan?
Thank you for your help.
0 votes Thank Flag Link Sun Mar 24, 2013
tell your price we are planning to rent for 2 years
0 votes Thank Flag Link Tue Jul 17, 2012
Hi HK:

I agree with Keith. Read your mortgage documents and to go one step further, I highly recommend you consult with an attorney.

Also, are you prepared to be a landlord? Have you thought out the pros and cons of renting your home out?

Best of Luck.
John (John B.) Badalamenti
Associate Broker
Certified Residential Specialsist
Weichert, Realtors - Collegeville, PA
610-409-9911
0 votes Thank Flag Link Mon Jan 5, 2009
Keith, I think you have done a great job at summing things up!
0 votes Thank Flag Link Mon Jan 5, 2009
HK
Very interesting responses so far.
Let me ask you: If you loaned someone money to buy a home based on their occupying it, then discovered that they had moved out, what would you do?

Read your loan docs, or have a trusted and knowledgeable help you.

Whatever happens, do the right thing...Not the most economical.
0 votes Thank Flag Link Sun Jan 4, 2009
Keith Sorem, Real Estate Pro in Glendale, CA
MVP'08
Contact
HK,

Good luck with your move and if you would like a free home market value report for your home, please don't hesitate to just email me. You can also just go to my website and request my free market snapshot for your home. Let me know if you have any problems getting one if you do use it.

Renee Porsia
Associate Broker
RE/MAX ACTION REALTY
(215) 669-0589 Direct
(215) 358-1100 Office Ask for Renee
http://www.reneeporsia.com Where you can get your Free market snapshot for your home. Try it right now.
0 votes Thank Flag Link Sun Jan 4, 2009
Thanks all for the very helpful answers. I will check out the documents. I will be relocating within a month permanently as far as I can tell now. Due to the market conditions, I start to considering renting out the house. At this moment, I am pursing both of the options...
Thanks.
HK
0 votes Thank Flag Link Sun Jan 4, 2009
HK,

I am sure that the "mortgage police, as Ms. Porsia refers to them, will not come to your place. Renting something out for several months is different than turning the property into an investment property. I used to work at Golden West Financial (World Mortgage) as an appraiser. Periodically we did visuals where a group of managers and appraisers would visit neighborhoods where loans were made. It was not unusual for a manager to stop at a random property, knock at the door and ask for the owner. You would be surprised how many of these properties were NOT owner occupied.

You may do whatever you like - however, I do encourage you to READ all of your documents. People who tell you to just go ahead and do something because other people do are very foolish. Your note is the promise to pay back the money you borrowed under certain terms. The mortgage gives the home as collateral. I also wrote mortgages and closed many loans. In the last 2 years, I don't want to even think about how many different forms there were in the loan package addressing the fact that the borrower was to be the owner occupant. I think they do that for a reason...what do you think? None of these documents said how long you had to be the occupant...they DID say that you had to take occupancy in 60 days.

Most realtors have NEVER read all of the documents included in a mortgage package. Many loan officers have not read these documents in detail either. It is easier to tell people to "sign here", and just pay. Those documents are LEGAL documents. Tonight, if you are having a sleepless night, take out your mortgage package. I would love to know if it tells you that you only have to live there a certain number of years before you are able to use it as a rental.

Carol Murray Cei
0 votes Thank Flag Link Sun Jan 4, 2009
Most people do not inform their mortgage company as they can call the note or demand you refinance at a non owner occupied rate which will be higher. As long as you make your payments on time it is unlikely you will have any problems, however only you can make the decision of what you want to do. review your mortgage and decide what is best. especially a licensed agent can not give advise on this matter, but can tell you the pros and cons of either decision. good luck with working things out and good luck with your move.
Web Reference: http://www.ScottSellsNH.com
0 votes Thank Flag Link Sun Jan 4, 2009
I have to disagree with Carol. When he took the mortgage, he was the owner occupant. He now would like to rent it out. He didn't say for how long as of yet. We do not yet know all of the facts. The mortgage company is not going to send the mortgage police to his home if he rents his home out for a few months. Perhaps he would like to sell his home after he is settled.

Renee Porsia
Associate Broker
RE/MAX ACTION REALTY
(215) 669-0589 Direct
(215) 358-1100 Office Ask for Renee
http://www.reneeporsia.com
0 votes Thank Flag Link Sun Jan 4, 2009
HK,

I think Renee is right as far as you not needing to notify your mortgage company. Just make sure you continue to make your mortgage payments! Your interest rate should not change at all.

That being said, you may want to inform the company with which you have your homeowner policy. You will want to make sure you have proper coverage since you will not be living at the property.

It would be great if a mortgage person or an insurance rep couuld chime in here because I am not certain if the updated homeowner's insurance policy would have any effect on the insurance escrow portion of your mortgage payment. At any rate your interest rate would not change in that case, only the amount you are paying toward homeowner's insurance.
0 votes Thank Flag Link Sun Jan 4, 2009
Hello, HK,

It would be my best guess that, according to the terms or your note and mortgage, you got a rate based upon owner occupancy. If you are no longer the owner occupant, you are breaching the contract and the lender would have the right to call in the note for payment.

I am sure that no lender wants to take back any more properties, but they may force a refinance with this home becoming an investment property. You would then have to have sufficient equity, as well as income, etc. to qualify for an investor loan. If you can bring all of that together, you should be fine.

I strongly suggest being forthright with your lender. You don't want to run in the shadows and then get caught by surprise.

If you are moving permanently, think about selling your home. By the time you have to redecorate, replace, etc. whatever transpires in a tenancy, you may be better off getting out of it now. Also, if you have to have the expense of a refi - count up the $$$ before you put the first tenant in place.

Carol Murray Cei
ReMax Millennium
215-643-9661
carolcei@remax.net
0 votes Thank Flag Link Sun Jan 4, 2009
Hi HK,

You do not have to contact your mortgage company. You will continue to make your mortgage payments out of the rent that you receive from your new tenant. How soon do you have to relocate? Where is your home located?

Renee Porsia
Associate Broker
RE/MAX ACTION REALTY
(215) 669-0589 Direct
(215) 358-1100 Office Ask for Renee
http://www.reneeporsia.com
0 votes Thank Flag Link Sun Jan 4, 2009
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