If you’re a homeowner with a mortgage, the idea of renting out your house for the first time can feel uncertain. Many householders in Michigan wonder if it’s even allowed. Understanding the rules can help you make confident decisions and enjoy the benefits of renting your property.
You can generally rent out your house, even with a mortgage. However, you must first contact your mortgage lender and inform them of your intention to rent. Some lenders may have specific terms or require a formal agreement.
Read our article to learn the steps and tips for renting your house with a mortgage.
Can You Rent Out Your House If You Are Paying A Mortgage?
Yes, you can rent out your house while paying a mortgage. However, there are essential steps to follow. First, you must review your mortgage terms. Some loans require the property to be your primary residence, so renting it out may not be allowed without approval. You’ll need to notify your lender about your plans to rent. Failing to do so can violate your agreement and result in fees.
Additionally, check with your homeowners association (HOA) if your property is part of one. Some HOAs have rules that limit renting or require the home to be owner-occupied.
How to Rent Your House Out On A Residential Mortgage?
Most landlords in Michigan struggle when they need to rent out their house but are stuck with a residential mortgage. Knowing what steps to take can be confusing in such a situation. We’ve listed the key things you should do to rent your house out while keeping your mortgage in check.
Step 1: Get Your Documents Ready
When you first applied for your mortgage, you likely told your lender that you intended to live in the home. This information helped set your interest rate and loan terms. However, changing your mind and renting the house without notifying your lender can be considered mortgage fraud. That’s why it’s essential to review your mortgage documents.
Check the fine print for any rental restrictions. Most lenders allow you to rent your home after you’ve lived there for 12 months, but you need to confirm this in your loan agreement. Always double-check the conditions before moving forward.
Step 2: Inform Your Lender
It’s essential to be honest and transparent with your lender about your plans to rent out the home. You can avoid misunderstandings about your mortgage agreement by informing them right away.
Your lender may need to adjust the terms of your loan to allow you to rent the property. They may change your interest rate or fees or switch your loan to a different type, like a buy-to-let mortgage.
Step 3: Analyze Rental Cash Flow
Once you’ve confirmed that you can rent out your home, it’s time to calculate your rental cash flow. It means figuring out how much money you’ll make after paying all the costs. Your rental income won’t just cover your mortgage.
You’ll need to consider other expenses like property management fees, maintenance, repairs, and insurance. While you may be able to deduct mortgage interest on your taxes, you’ll also have to pay taxes on any rent income you earn. Plus, consider potential vacancies, such as when your home may be empty and not bringing in money. It’s also essential to account for capital gains tax and depreciation over time.
Step 4: Update Your Insurance Policy
If you have homeowners insurance, it’s time to update your policy. Homeowners insurance is for people who live in the home, but if you’re renting it out, you’ll need landlord insurance. This type of insurance covers property damage, liability, and even loss of rental income.
Expect to pay more for landlord insurance, usually 15-20% more than a regular homeowners policy. While it’s a bit more expensive, having the right insurance protects your home and finances. If something goes wrong, it can help cover damages, accidents, and lost rental income. Make sure to switch to landlord insurance to protect your property while renting it out.
Step 5: Consider Professional Property Management in Michigan
If you’re renting out your home, consider hiring a professional property management company to help with the process. Property managers can handle everything, from finding reliable residents to maintenance and repairs. They can also help set the right rental price, collect rent, and ensure all legal requirements are met.
A good property manager saves you time and stress, especially if you’re new to being a landlord. As a reliable property management company in Michigan, Amerihome offers expert services such as resident screening, maintenance handling, and legal support to ensure everything runs smoothly.
What is Consent To Let?
Consent to Let is official approval from your mortgage lender that allows you to rent out your home, even though your mortgage was originally for residential use. When you take out a mortgage, it’s typically assumed that you will live in the property.
However, with Consent to Let, your lender grants permission for you to lease the property for a set period. It is especially essential for homeowners experiencing life changes, such as relocating for a job or adjusting their finances. Without this consent, renting out your home can violate your mortgage terms and lead to penalties.
Applicability Of Consent To Let
Consent to Let is helpful for homeowners who need to rent their primary residence temporarily. It allows them to lease the property under specific situations, such as:
- Renting to a family member while planning to return in the future.
- Renting the property due to job relocation when unable to get a buy-to-let mortgage.
- Temporarily leasing the home while awaiting a sale or during a financial setback.
- Keeping the property as an investment after relocating for personal or professional reasons.
- Renting out the property if you need to cover mortgage payments during financial hardship.
Tax Implications Of Renting Out A House in Michigan On A Residential Mortgage
When you rent out your house in Michigan on a residential mortgage while still living in it, you will face tax rules. Although it’s not considered running a business, you still need to pay taxes on any rental income you make.
Any money you earn from renting your home must be reported to the IRS. Depending on how much money you make, the tax rules can change. For example: you can lower your taxable income by deducting certain expenses, such as:
- Mortgage interest
- Property taxes
- Operating costs (property management fees, repairs, and maintenance)
- Insurance premiums
- Depreciation (as the property loses value over time)
However, the more money you make, the higher your taxes may be. The tax rules for renting out a house depend on the type of property and your specific situation.
Keep good records of all income and expenses related to renting your home. Plus, it’s essential to seek advice from a qualified tax specialist before taking on residents and renting out a property that still holds its residential mortgage.
In Closing
Renting out a home with a mortgage can be a smart way to earn extra income, but it requires careful planning and understanding. You must review your mortgage agreement, talk to your lender, and follow all laws in Michigan. It’s also helpful to keep detailed records of rental income and expenses for tax purposes. If you’re unsure about any part of the process, getting expert advice can save you time and trouble.
For personalized property guidance or help to rent your home, contact our team of professionals today. We’re here to make the process smooth and stress-free!
Frequently Asked Questions
Can I rent only a part of my house if I have a mortgage?
Yes, renting out a room or part of your house is usually allowed, but still inform your lender. Specific rules may vary by agreement.
Do I need special insurance to rent out my house?
Yes, most homeowners need landlord insurance. It covers damages and liabilities that regular homeowner insurance may not include.
Can renting my home affect my mortgage rate?
Renting your home doesn’t affect your mortgage rate. However, failing to inform your lender can lead to issues with your mortgage terms.
