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Can I Rent Out my Home?

Updated: Nov 3, 2022

Original Authorship Date: 5/25/22

(above - my first home, purchased in 2017 with a 30-year 5% down conventional rehab loan, converted to positive cash flow rental property in 2020, refinanced to a 15-year mortgage of <3% interest in 2022 while retaining strong positive cash flow)

Today a buyer asked me about the prospect of renting out their home after purchase.

I wanted to go over the answer to that question:

1. If You Have a Mortgage

I suggest reaching out to your lender for this question if you have a mortgage on the property. According to Investopedia, "Do I Need to Check With My Lender Before Leasing Out My Home? Some financial institutions require that you live in your home for at least 12 months before you rent it out to anyone else. Others place limits on how the property can be used—they may only give you a mortgage for an owner-occupied property. Check your mortgage agreement to see if there are any restrictions or contact your lender directly if you are unsure of how to proceed." a. If you have a mortgage and plan to purchase something else: If you plan to purchase something else, according to Homeguides, "The FHA looks for 25 percent equity before it will permit you to use rental income to offset your current home's mortgage payment. Most lenders insist on cash reserves to cover a minimum of six months of payments on both properties." Your lender will also want to make sure that if you are purchasing something else your debt-to-income (DTI) ratio will still work out. Even if you are having positive cash flow when comparing your rental income vs your mortgage payments and other expenses, your mortgage still typically will negatively impact your DTI.

b. If you have a mortgage and plan to purchase something else: Even if you plan to rent elsewhere, for anyone with a mortgage looking to rent out a home, your debt to income ratio will still typically be negatively impacted by your mortgage even if you have a positive cash flow scenario where all rental expenses (i.e. mortgage, property management fees, maintenance, etc.) are less than the rental amount. All that said, your lender will be able to give you the most accurate info specific to your situation.

2. If You are in an Association

3. Renting Out Rooms

4. Short Term Rentals

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