You can buy a house and rent it out immediately if you pay cash, or have an investment property or second home loan through your lender. You typically cannot rent a house out immediately with a conventional (primary residence), FHA, USDA, or VA loan.
Loan Types and Owner-Occupancy Requirements
If you do have a loan, here are the occupancy requirements before renting.
|Does not allow rentals
|Conventional (Fannie Mae or Freddie Mac)
Can You Buy a House With a Government-Back Loan and Rent Out Immediately?
Most government-backed loans generally do not allow immediate rentals.
FHA and VA Loans
These loan types generally require an owner to live in the home for 12 months before they can move and rent it out. However, there are some exceptions to the 12-month occupancy rules including:
- Job relocation – your job (including military deployment) requires that you move more than 50 miles from your home.
- Family changes – if the family dynamic changes (birth of a child, divorce) to require a larger home, you may qualify for an exemption.
In these situations, your lender may allow you to rent out your home before meeting the 12-month requirement.
USDA loans do not allow rentals. Only the borrower and their immediate family members can live on the property.
Can You Buy a House With a Conventional Loan and Rent Out Immediately?
You can rent out your house with a conventional loan if you identified it as a second home loan or an investment property loan. You cannot rent out your primary residence home with a conventional loan immediately after purchase.
Primary Residence Loans
If you have a primary residence conventional loan, you cannot rent out your home until you have lived there for 12 months. Here’s how the IRS generally determines your house as a primary residence:
- You live there the majority of your time
- It matches the address on your tax returns and driver’s license
- It’s near your work, family, or an organization you belong to
Keep in mind that government-backed primary residence loans such as FHA and VA loans also require you to live in your primary residence for 12 months before renting
Some lenders may have additional restrictions for primary residence loans outside the 12-month occupancy rule. Be sure to check with your lender for any additional restrictions or requirements.
Second Home Loans
Most lenders will allow you to rent your second home immediately after purchase.
Many people open up their second homes as vacation rentals (such as through Airbnb) for the times they’re not staying there. Government-backed loans do not sponsor vacation homes, so a conventional loan or other private loan is the only financing option.
Requirements for a second home loan generally include a 10% down payment and require the owner to live their 14 days or 10% of the year.
Keep in mind that if you rent the house more than 14 days per year, you must report all income to the IRS. You also become subject to landlord-tenant laws.
Investment Property Loans
You can rent out your investment property immediately after purchase as an investment property loan is used with that expectation in mind.
This is often the most difficult loan to qualify for and comes with the highest mortgage rates. Requirements generally include a down payment between 15% – 20% and reserves to cover 2 – 6 months of mortgage payments
Rates for an investment loan fall between 0.5% to 1% higher than primary home loans. You can rent an investment property immediately, as long as you follow state, local, and federal laws.
The FHA and VA do offer investment property loans for multiple-family properties as long as you live in one of the units for at least 12 months.
State and Local Rental Rules
Another potential hang-up for renting your property immediately is state and local rental rules. It is essential to research the area and community the property is in. All states require that the property be up to code and many states require a landlord permit and a certificate of occupancy.
Local rental regulations also include HOA policies. Many HOA communities do not allow rental properties.
Doing your research ahead of time helps to alleviate issues that arise when trying to rent your property quickly.
Tax Benefits of a Rental Property
If you can rent your property immediately, keep in mind you will need to report any rental income (over 14 days) you receive. Rental properties also create a few different deductions you can claim on your taxes. Potential deductions include:
- Mortgage interest
- Repairs and maintenance
- Property taxes up to $10,000 or ($5,000 if married filing separately)
- Travel expenses for property maintenance or administrative business (collecting rent)
Can I Switch My Loan Type?
You can switch your loan type. If you have not met the owner-occupied requirements or have a USDA loan, you will likely need to refinance your mortgage to allow for renters. Talk with your lender to discuss your options.
How to Rent Out a House Immediately After Buying
If you are purchasing an investment property, you may be hoping to fill the home with a tenant as soon as possible. Here are a few beginning steps to consider:
- Understand tenant laws
- Ensure you have the proper insurance
- Create a move-in checklist
- Complete repairs and upgrades
- Hire a cleaning professional
- Set your rental price
- Create a solid application
- Post an advertisement
- Accept and screen applications
- Choose a tenant
- Sign the lease paperwork and collect the deposit
- Set communication procedures