Will changing insurance type to rental create Issues with Lender?

Question

First time trying to rent my primary residence and was wondering if the lender will find out when I change the insurance type from home owner's to Rental type.

If they do find out, will that create any realistic issues?  I've owned this home for 10+ yrs and have a mortgage with major bank.

Also, how do I prevent the bank's statements to keep coming to the home? They do not allow online only statements and I mail forwarding can only be done for a year I think. I am afraid of calling the bank to tell them I need to have the mailing address changed to a different one since it will be pretty obvious I do not live in the home any longer. Thoughts?

Thanks in advance.

Dion DePaoli · Answer

It appears you have an FHA loan against the property.  In the paperwork that you executed which will include the trial program and final modification, there is definitely a part where you the borrower affirm or agree to maintain the property as your primary residence.  Most of the modifications allowed and carried out for FHA loans are only for primary residence.  If you didn't reside in the home as primary residence, you would not receive the modification based occupancy.
	
	Many of those HAMP modifications resulted in credits back to the mortgage servicer and investor.  A credit that upon review may be refused if they find the occupancy is no longer primary.  The claims are backlog and do not have to be turned in right away post completion.  It would not be a far fetch to have a mortgagee be denied their credit for reducing your loan obligation by FHA and then being a little ticked off and triggering due on sale.
	
	The clause will be subtle, it's not some massive paragraph and will say something along the lines as Borrower will use the property as their primary residence or Borrower confirms property is for primary residence use, etc.  The key is, it is enough for FHA/HUD to deny the claim put forth for relief of loss for providing you the modification you received.  
	
	What you really should do is stop trying to play the shuffle cup game and deal with your mortgagee on that matter so you don't have to worry about these types of things.  Contact them and let them know what your plan is.  The mortgagee can not indefinitely keep you in your home as a primary residence for extend periods of time, but they can tell you if they believe you affirmed to X months or Y years at the modification.  Which is similar to what you do at origination.
	
	The moral of the story here, pick up the phone call your mortgage servicer and talk to them.  You have nothing to fear.  After 10 years you would be fine to do what ever you want.  After less than 2 years of a modification, you may need a couple more months.  The term is not more than 2 years, I believe.  Better to know and deal with it properly than to create all this other circumvention events which is only really a burden on you.

Lynn McGeein · Answer

We have FHA and there was no issues changing to a rental when we moved 2 years later.  We even did the special FHA streamline refi while it was a rental and there were no problems, even included an investor clause saying they understood it was now an investment property, although it added that in the case of non-payment, the rents can go to them.

Donald Stevens · Answer

If you want the safest answer it would be to tell the bank what is going on. They may be ok with it because they are not looking for inventory right now so you may not have a problem. Trying anything else does create a risk for you. Although almost always its not a problem, there is noone here that can gaurantee you wont have a problem except your bank.

Steve Babiak · Answer

If it's FHA you might have to remain an owner occupant or they can call the loan - I said might.  It depends on what your loan docs say.  I know somebody who had to refi to an investor loan after moving out when their loan was called.

As @Jon Holdman already posted, for conventional loans it's usually 12 months of owner occupied status after which it can be made into a rental without the lender having any issues/

Jon Holdman · Answer

Really, don't worry about this.  People do it all the time, even with FHA.  Its a pretty common strategy to buy a house, live there for a year or two then move out and turn it into a rental.

If its a rental you certainly want a landlord policy.  A homeowners policy may result in a denied claim if they find out you have tenants there.  And the lender does need to be named and gets info from the insurance company.

Is there any out for them to renege on the modification?  If not, I don't think you have anything to worry about.

Jon Holdman · Answer

Is this any sort of unusual loan?  If so there might be restrictions.   If its just a normal conventional residential loan then you are LONG, LONG past when there is any issue.  Typically as long as you stay there at least a year you're good for moving.  Send them your new address.

Now, again, all bets are off if there are special restrictions on the loan.  That would be unusual.

Justen Ashcraft · Answer

Get a P.O. box at your local post office and have your information redirected there.  Insurance, loan, etc...

I don't think you will have any issues renting out your place, but I don't have your docs laid out in front of me.  If its a "normal" loan FHA or conventional you shouldn't have any issue at all.  They may even loan you money for your next home.

Peter Turner · Answer

I got a quote with Nationwide who has my homeowners.

They are selling me a landlord insurance for $580 and covers the Dwelling for $135k, Extended coverage (not sure what it includes) and vandalism and mischief. Deductible is $1000

I did not want personal property coverage since the appliances I am leaving do not cost more than $1000 combined.

This sounds like really good price to me.. am I missing something that is it so cheap vs my homeowners that was $800?

Please advise. Thanks

Bill Gulley · Answer

Owner occupancy requirements generally fall off on all mortgages after 12 months of origination or modification. There are always exceptions, FHA bond money or loans that provide forgiveness of debt under special circumstances can require occupancy for longer terms, I've never seen special requirements beyond 5 years.

Keeping you lender informed is a good idea, especially after they modified the note. You certainly need to change policies. :)

Elizabeth Colegrove · Answer

@Peter  Turner

We have moved out of personal properties and rented it out without an issue. We just called the company who did our regular homeowners policy and they turned it into a landlord policy with no issue.

Somethings I would love into

• Do they cover dog bites?

• What rent per month are they covering in the event of an issue?
• What's the deductible?
• What's the liability, If you don't have an umbrella policy than I personally like 500k.

Will changing insurance type to rental create Issues with Lender?

Most Popular Reply