Renting out a house in the US

Grrrr. I'm in the middle of the "real" move from the UK to the US and my dear mortgage lender here in the UK is refusing to give consent for me to rent out the house for a few years while we figure out if we're better off in the US or here. Splendid. Payments never a minute late, never a problem at all but those a*wipes tell me to go yonder and procreate. It looks like that'll be an unintended house sale then.

So, in order to avoid falling into the same trap in the US, if I buy a house in the US and have to move, say, for job reasons, do I have to get permission from the lender to rent out the house or are they going to be happy as long as they get the monthly check?

The lender can tell you what to do with the house AFTER you already own it? Never heard of that happening over here.

Yeah, there's basically a clause in all the mortgage contracts over here that puts restrictions on what you can do with it (ie, not let it out without their permission, don't convert it into commercial property if it wasn't and all that sort of stuff). Of course all that goes away when you pay off the mortgage.

Good to hear that that doesn't seem the case in the US.

Josh wrote: The lender can tell you what to do with the house AFTER you already own it? Never heard of that happening over here.

The only thing comparable I can think of is some condo boards will limit the total # of rentals in the building, but I can't think of anything for a first mortgage on your first house...

(Once you start buying more houses, they'll question which one you're actually living in, etc)...

Your intent to occupy the property as your primary residence is typically a condition of the loan approval - you would receive less desirable terms if you applied for a loan to purchase a non-owner occupied residence. The lender may set whatever terms they choose, although the custom is typically to require the borrower to sign an occupancy agreement affirming their intent to occupy the property for a minimum of 12 months.

However some lenders go further and require occupancy for the term of the loan and reserve the right to call the note or adjust the terms to the less desirable 'investment property' rates if you move out.

Borrowers routinely lie about their intent to occupy - attempting to secure the more attractive owner-occupied rates and terms to purchase rental properties. There's a word for this - fraud, and lenders regularly screen for this. However many borrowers unintentionally rat themselves with change of address notifications.

Just be up-front about your intentions and ask to see the occupancy agreement early in the process. Again - most are 12 months, so it shouldn't be a problem but it is a good idea to think ahead. Good luck.

Thanks for the info - we're looking at renting for at least 2 years anyway (got to get a deposit together, I've got to build up some credit history etc) and anything we'd buy should be for our own occupancy first anyway.

It's just that I don't want to be in the situation where I have to sell the house like now, simply because I can't refinance to get an investment mortgage - the valuations for the house are all over the place and with most of them I haven't got enough equity in the place for an 'investment' refinance. As I tend to prefer to buy a house I like rather than something that's got a roof, I find it quite heartbreaking to be essentially forced to sell it unless I win the California lottery.

shame you cannot come to an agreement with the mortgage company (paying more a month maybe?) to allow you to rent it out.

oh well, looks like their loss when you sell it on and pay them off without all the excess financing they have been charging you

Yeah, I'm surprised they didn't just turn around and said "sure, we'll have another 1% for our troubles then".

That said I think they want to get their existing mortgages of their books ASAP (they're owned/rescued by the UK government after they want more or less bankrupt and they're being wound down).

I might get a small start for a deposit out of this; at least I'm not underwater with the mortgage.

There are no restrictions after you own the home with a typical mortgage in the states. As someone posted above, financing for owner occupied housing is cheaper than for investment properties, but the underwriters are just looking to ensure you are moving in at the time of purchase.

The only restriction is that you cannot change the ownership--it is not uncommon for investors to buy a property as a real person, and then for asset protection, transfer title into the name of an LLC. Technically this change of ownership allows the lender to call the loan due. Never actually heard of it happening.

PeterAK, mortgage guy and landlord

Sometimes it's easier to ask forgiveness than permission. If you do rent the house out, how will they know? If the bank is still receiving payment as agreed they have no reason to verify tenancy.

It depends on the loan. If it is FHA or other govt. backed loans, then the answer is no for a specified set of years. In other mortgages, it may be a asked if you intend to occupy it for a primary residence, and if you answer yes, then you are good to go for many lenders. Some may specify a length of time to occupy, others will not. Our last one had no such clause. If you do rent it though, you will pay more property taxes in many states.

I rent a house I used to live in, and no problems with any of that, other than the higher taxes that is.

evildky wrote: Sometimes it's easier to ask forgiveness than permission. If you do rent the house out, how will they know? If the bank is still receiving payment as agreed they have no reason to verify tenancy.

In my case, it's illegal to rent out the house if I don't have an agent in the UK that the tenant can contact if there's anything wrong with the house. And those agents (usually part of a firm of realtors) need to check that the lender has given consent.

From all your responses (and thanks for all of them!), it seems that this whole thing is a lot easier in the US. I've kinda gotten used owning my house and I'd like to own one again but I don't want to end up in a similar E36 M3ty situation in the future.

evildky wrote: Sometimes it's easier to ask forgiveness than permission. If you do rent the house out, how will they know? If the bank is still receiving payment as agreed they have no reason to verify tenancy.

See above regarding fraud, and believe me when I tell you that mortgage lenders are looking very hard for fraud these days, and not showing much 'forgiveness' when they find it.

As far as 'how they know', there are lots of ways but the easiest is when the borrower changes their address to send the mortgage statement. They also sometimes get tipped off by a change in the hazard insurance or a red-flag in a routine credit screening (a good creditor is able to identify problem loans before they get to the point where they are delinquent).

All of that in mind, converting to a rental is usually not a problem for the first lien holder once any required initial occupancy period is completed. Second lien holders are a different story altogether.

You guys are making it much harder than it is. Occupancy periods on mortgage loans is not measured in years, it's measured in INTENT and months. And in every case I know of if your "circumstances" change then all time periods go out the window.

If you were to close on your house and intend to live in it as your primary residence at time of closing but won the lottery the next day and went out and paid cash for your new mansion which became your primary residence then that's a changed circumstance. You may have to prove that to the FBI when they come knocking on your door, but with proof your circumstances changed then you are home free and clear. Lose your job just after you close? That's a changed circumstance.

I'll have to check tomorrow to see what VA says about it, but FHA, Fannie Mae, Freddie Mac, & Ginnie Mae don't have a problem with it.

I've only been doing home loans since 1974 so don't take my word for it if you don't want to, but I've sat down in front of the FBI guys to have just this conversation when customers of mine had a changed circumstance.

In reply to carguy123:

False I practice real estate law and every mortgage loan i've ever closed for primary residences in usa contains many use clauses, including a use clause that requires you to reside, in the property. If you purchase a house as investment property you pay a higher rate, must put more down, but then you could rent it out or live in it yourself. of course if you rent it out and make the mortgage payment i don't know how they would ever find out.

I checked with Fannie Mae this morning and the occupancy clause is definitely intent at time of PURCHASE only. They do not restrict usage after purchase - within reason. That is the reason for the required number of months occupancy, to prove that when you purchased the property you truly intended to occupy the property as your primary residence and this wasn't just a scam to get a Non Owner Occupied house at an Owner Occupied rate & terms. If you can prove changed circumstances during the initial restricted period then you can rent the property with no legal consequences You can always rent the property but not transfer any interest in title (Contract for Deed, Lease/puchase, etc.) anytime after the initial X month period.

I talked to VA this morning and they are "out" on a decision as to whether you have a problem if you win the lottery the day after you close on a VA loan. You know how the govt is, they have to run it up the ladder and get the maximum number of people involved so that they can justify their existence.
The RE attorney friend I called this morning said VA will end up being the same as the others since their language is all but identical.

With that said the Usage clause is part of the section where you agree not to commit waste which means you have to keep the collateral in such a condition as to maintain it's value. I saw a home once where they'd painted it babyE36 M3 yellow to get back at the HOA. The HOA sent pics to their lender and the lender required them to repaint the house because they'd destroyed part of the value of the collateral.

As I said, I've also sat down with the FBI guys and heard it straight from their mouths. They will not prosecute cases unless it it clear cut.