According to a 2021 National Association of Realtors survey, almost half of Americans are interested in renting the extra space in their homes. More than 80% would invest in creating additional space to rent, and 53% would rent their entire homes. 

Here is what to know and consider when you’re thinking about renting out a house you just bought:

What To Know if Your Home Has a Mortgage

In most cases, you can rent out a home you just bought, but you need to work with your mortgage company.

When you get a mortgage for an owner-occupied home, you’re considered less of a risk to the bank and may qualify more easily for lower down payments and lower interest rates. All of these conditions change if you buy a house to rent out as an investment property, but if you already have your owner-occupied mortgage and now want to rent, you must contact your mortgage company. Some lenders may let you rent out your home with your existing terms and rate while others may charge you a fee, ask you to refinance, or require you to reside in the home for a period before you rent.

Some loan programs, like the FHA or USDA, require you to live in the home for a year before you can rent unless you have an extenuating circumstance, such as being required to relocate for a job.

Here’s what you need to find out about if you have a mortgage on a home you want to rent out:

• Consult a lawyer or accountant. They know what to look for when you’re putting your home up for rent. They’ll have expertise in landlord-tenant laws and your responsibilities. They can also advise you on the tax consequences of using a home as an investment property.
• Read your mortgage contract. Your lender may place restrictions on renting or may ban it altogether. Your mortgage contract should give you a better sense of the existing policies.
• Tell the mortgage company. Even if your mortgage contract doesn’t outright ban rentals, you should still check with your lender. There may be additional requirements, such as requiring your tenants to have rental insurance. If you rent the house and move to another home, you need to ensure your lender knows your new address so they can keep in contact.
• Understand your loan’s restrictions. Your new mortgage may carry occupancy requirements, meaning you must live in it for a certain amount of time before renting it out.
• Weigh capital gains consequences. You may incur capital gains taxes if you decide to sell the home later. You will have to live in your home as your primary residence for two of the five years leading up to the sale.

What To Know if Your Home Has an HOA

HOAs may have a say in renting your home, too. You need to know whether your homeowners association has restrictions or outright bans on rentals. Some HOAs may limit the percentage of rental units at one time, set their own lease terms, and require tenant registration, deposit, or fees.

If your HOA approves, follow local and state laws that may cover security deposits, other lease terms, and rent control.

Check Realtor.com’s State Landlord-Tenant Laws page in the U.S. and the Canadian government’s Landlord and Tenant Relations page for more information.

The Pros and Cons of Renting Out Your New Home

Here are some reasons why you should and should not rent out your new home.

Pros:

• Additional income: Renting out your property can be a great way to earn extra income, which can help pay off your mortgage, cover maintenance costs, or provide additional financial flexibility.
• Flexibility: If you don't want to live in your property or need to relocate, renting it out allows you to keep ownership while also allowing someone else to live in and take care of the property.
• Property value: Renting out your property can increase its value over time, especially if you make improvements and keep it in good condition.
• Tax benefits: Rental income can be taxed at a lower rate than other types of income, with several deductions and write-offs that can help lower your tax liability.

Cons:

• Legal obligations: Renting out your property comes with legal obligations such as ensuring the property meets safety standards, obtaining proper permits, and following local landlord-tenant laws.
• Property damage: You run the risk of tenants causing damage to your property, which can be expensive to repair.
• Property management: If you don't have the time or resources to manage the property yourself, you may need to hire a property management company, which can eat into your rental income.
• Tenant problems: Dealing with problematic tenants can be time-consuming and stressful, detracting from the benefits of rental income.

It's important to consider these factors carefully before deciding whether it’s worth it to buy a home to rent out.

Can Brookfield Residential New Construction Homes Be Rented Out?

If you’re considering purchasing and renting out a new construction home from Brookfield Residential, it’s best to ask the community team for the rules and regulations as these are subject to change by location.

On a broader level, you can also check with any HOAs and local, state, and federal laws to determine whether renting your home is allowed. There also may be restrictions depending on your mortgage contract.

Find Out What You Need to Know About Buying a Home

The decision to buy a new construction home is a major one, whether for your own use or as a rental. It’s important to be prepared for the road ahead. The Brookfield Residential blog offers a number of resources that can make the process easier. You can learn more about the homebuying process, home financing, and more.

When you’re ready, contact us to learn more about what our communities have to offer.