Is it illegal to rent basement?

[Ana Coello]

Hello BP community!

I have a big question. Here's the background: my partner and I have a realtor that sent us to a loan officer for us to talk to him about the best way to do our 2018 taxes to have the best chances at a great loan. Now we talked to the guy and he ran our credit and is in the process of getting us pre-approved (not what we initially wanted at the stage but ok) and we told him that we wanted to rent out the basement of our house and he said that was illegal for an FHA loan. We are looking for something in Maryland. Is that true? He is also saying that 203k loans aren't the way to go and that only one of us should be on the loan. I don't want to do anything illegal but how do people rent out rooms/basements and it being ok with the lender and everyone else? Any help is great!

Warm wishes,

Ana Coello

[Russell Brazil]

Depends on the jurisdiction. PG County you can not rent out the basement.  DC you can if it is owner occupant and it meets certain condition requirements. Montgomery County you can if it is owner occupied, meets certain condition requirements, and is more than 500 feet away from another basement rental.  The ability to rent out the basement though has nothing to do with your lending/borrowing situation.

And a 203k loan is largely not going to be something you can actually use in most cases in our current market. If the property is in bad enough condition it needs rehab...someone is buying it with all cash.  Properties priced appropriately move briskly...and a 203k loan has a very long closing timeline, that often falls apart, so no listing agent is going to accept a contract with one if the property is already appropriately priced.