Converting residense to rental

Hi all,
I bought my home a few years ago through an FHA loan. My fiance and I are now looking to buy a place together. I’ve always wanted to get into rental properties, but wasn’t in a financial position to do so. Now I’m thinking about trying to hold onto my current place and convert it into a rental when we buy the new place.

I have a few questions:

  1. I want to refinance for various reasons. Can I go ahead and refinance now, or will I need to refinance again once it’s converted into a rental? If I refinance while still living there, do I have to disclose that it will be converted into a rental? Will there be any clauses in the mortgage that require it to be owner-occupied? What about any thoughts on type or mortgage for a rental property - 30 year fixed, some sort of ARM?
  2. We can qualify for the house we want to buy on my fiance’s income alone if necessary, but I want to be on the title. Do we need to qualify together in order to both be on the title? How does my holding onto my current mortgage affect my application for a new mortgage, especially if my place is not yet rented and there are no comparable properties for rent in the area (it’s an older neighborhood where all the houses are different sizes, on different acerages, etc - so even my assessments are amusing to find out what they “compared” me to, and when looking at rentals it’s even more limited)?
  3. I need to do some maintenance on the place (mostly small, simple items). At what point can I convert the place into a “rental” in order to be able to deduct maintenance costs? Do I have to actually have a renter? Of course it would be better to have the maintenance done before trying to find a renter from the renter’s point of view. If I do maintenance while I’m still living there, can it be applicable for tax deductions if I’ve already started looking for future renters?
  4. How does converting to a rental typically affect insurance? Will it increase? How much on average?
  5. Who’s the best person to start with? I figure I need to talk to:
    -Property Manager
    -Mortgage Broker
    -Tax Advisor
    Who else? Who should I go to first?

Thanks for everyone’s help. It’s so overwhelming just trying to figure out where to start!

TJ Girl

  1. Re-fi while you live there (not sure if there are any special issue with it being a FHA); doing it later will be much more difficult and expensive. Also, not much an issue about owner-occupied and “thinking about it” to buy another place and rent the current one out. If you had already bought another house and taken an owner-occupied loan, then there would be an issue. Re-fi and then buy your new one.

  2. If you get married or buy when are married, you may get half the house automatic. Depends on the laws of your state. You can be on title without being on the mortgage.

3.Rental cost deductions can only be taken when it is “placed into service” (i.e. when you are not living there and are actively renting it or trying to rent it).

  1. Converting to a rental will change your insuracne coverage terms and probably increase the cost some (10-20%). Just call you agent when you do the conversion. It should be fairly straight-forward.

Most important is to find a good property manager especially if you are moving some distance away or do not want to deal with finding renters, collecting rent, ect. Then probably work on the refi and then once that done then purchase a new house.

I mostly agree with aak5454 except on the insurance. My insurance on my rental properties is much cheaper than on my residence because the insurance only covers the structure and not the contents. The renters have to get renters insurance on their property.

Also, I will tell you that refinancing the property as an investment property (ie rental) will cost you about 1% more on the interest on your mortgage. On the application there should be a question about the property being owner occupied. If you are planning on renting it, you will need to tell them at this point (or lie on the application). It might be better for you to take out a home equity loan instead of refinancing. Talk with a mortgage broker about the different options.


Thanks for the advice aak5454 and WilsonTaylor.
I feel like I can at least get started now :slight_smile:

As to a home equity loan vs refinancing, I really want to refinance anyway because I’ll get some of the FHA MIP back, plus should be able to go to a lower interest rate - I think I settled for too high a rate intially because of my ignorance of the process at the time. Also, I believe that the house will appraise for high enough to put my remaining balance at less than 80%, eliminating the need for PMI or something like an 80/20.

Thanks again. These forums are great for information!

REfi while you still live there and I would suggest not letting them know that it’s going to be a rental most lenders only require you to stay in the property at least 60days afterwards. As someone just stated it will make your interest rate higher. If possible try and get a fixed rate. Because who knows how high the interest rates are going to be in some years. If you are thinking of selling in the next 2 0r 3 years then you can do an ARM. As for when you’re married you can be on the mortgage which would give you title but the note and everything else will be in your husbands name. You usually have to disclose that you are married anyway.