Homeowners can typically rent out their house, as long as they have permission from the lender and are in compliance with other rules and requirements.
Permission and Requirements Before You Can Rent Out Your House
Make sure to meet these requirements before you start the process of seeking tenants for your property:
- Talk to Your Lender
- Get a Certificate of Occupancy
- Obtain a Landlord Permit (If Needed)
- Add Necessary Insurance Coverage
- Review Local Rental Regulations
- Examine HOA Policies
- Review Short-term Rental Requirements
- Read Rules for Subsidized Housing
- Learn Tax Implications
Talk to Your Lender
Review your mortgage paperwork to see stipulations on renting out your property. Some mortgage types don’t allow rentals and others have requirements that must be met first. For example, government-backed loans such as FHA, USDA. and VA loans require the owner to live in the home for at least 12 months.
Mortgages are often sold to another lender during the repayment period. This may change the ability to rent as well.
Violating a lender’s rental policy can cause them to demand payment of the entire loan. It could also be a crime. Securing a loan as the occupant of the home when you actually intend to rent it is called occupancy fraud.
Get a Certificate of Occupancy
Anytime there is a change in the owner or tenant of a structure, a new Certificate of Occupancy is required. This assures that the structure is up to code and meets all maintenance standards.
A new CO is also required if the owner remodels or alters the space. This includes if a garage is changed to a living space, home additions, or large remodels.
To get a Certificate of Occupancy you need to submit an application and include all information about the property and its usage and pay a fee.
The inspection process for a Certificate of Occupancy may include:
- Fire safety inspection
- Electrical inspection
- HVAC inspection
- Plumbing Inspection
- General building code inspection
Obtain a Landlord Permit If Needed
Some states require you to get a permit, also called a license, before you can rent out a dwelling. Even states that don’t have this rule have some local governments within their boundaries that do. Check with officials to be sure that you meet all requirements before you seek tenants.
Here is a quick snapshot of which states require a permit or license and which ones do not.
Add Necessary Insurance Coverage
Homeowners’ insurance covers damages to your property only if you are occupying it. Once you turn your home into a rental, you will need another type of insurance to cover any damages.
Landlord insurance will cover the physical property when damages occur. It also covers liability, covering the landlord in the event that damage to the property spurs a lawsuit.
Also, consider requiring tenants to have renter’s insurance to cover their personal belongings.
Additional types of insurance are also available. Depending on where the rental is located, you might want to be protected against vandalism, burglary, or changes to building code. Speak to your insurance provider for more information.
Review Local Rental Regulations
State and local laws often include information about keeping the property up to code, maintaining the proper safety equipment, and renting rights. For example, in Oregon, if a person moves into an abandoned or empty home, the state recognizes that person as a tenant, even if they didn’t sign a lease. In New York, no more than three unrelated adults can live together in a rental.
It is a good idea to talk with a lawyer to help you understand the rules in your location.
Examine HOA Policies
If you belong to a homeowners association, you may need permission to rent your house. You will need to review the policies and bylaws likely given to you when you bought the property.
Many HOA communities do not allow rental properties or have a cap on the total number of rentals allowed in the community. Check in with your HOA board to determine if renting your house is an option.
Short-term Rental Requirements
Yes, you need permission to rent out your property for weekends or during the summer. If you sign up with Airbnb or another short-term service, your local government will have its own rules around that.
Some locations state that you cannot rent out a home for less than 30 consecutive days. Others stipulate that you can only rent your home out for a certain number of days for the entire year. Even your community may have rules on whether you can use your property for these services.
Be sure you understand local laws before you advertise.
Rules for Subsidized Housing
Landlords do need permission to offer federally-subsidized units to tenants, such as Section 8 housing.
To qualify for subsidized housing, you will need to fill out a request for tenancy approval (RTA/RTFA) form. The property will also need to pass a minimum standard and inspection. Housing choice voucher programs require that the home be decent, safe, and sanitary. The inspection will look at things like:
- Properly latching door locks
- Working windows that are lockable, have screens and are free from cracks
- Functioning appliances such as the kitchen stove and fridge
- Working outlets and that the switch plate covers are free of cracks
Subsidized housing offers landlords low vacancy rates and automatic payments for 40% to 70% of the rent each month.
You also want to ensure you understand the tax implications of renting out your house. Rental income is taxable and must be documented appropriately, but there are a few exceptions.
For example, those who rent their house for a short-term period of less than 15 days per year don’t need to report any rental income. But, they can’t deduct any rental expenses.
On the other hand, many landlords claim maintenance and insurance expenses as deductions. Even if you only rent a room in your house, you can claim some rental deductions.
Tax implications also affect the sale of a property. The IRS requires that you must have at least two years of ownership and be living in the home for two of the last five years before you sell it to avoid capital gains tax.