Is it legal for a mortgage company to prevent you from renting out your home?

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I’m thinking of buying a home. The companies I’ve seen with the best rates all say that the property must be owner-occupied for the life of the loan. Mortgagees are allowed to have a tenant, as long as they also occupy the premises. No absentee landlords.

Are these provisions really enforceable? When you’re a homeowner, can’t you do what you want with your own property? They claim their motivation for this is that owner-occupants stabilize neighborhoods & I agree with that. However, it’s a scary thought that if I need to move, I won’t have the option of renting out the home instead of trying to sell it. Who knows what the market will be like in a few years. Sometimes renting a property out seems necessary, you know? It’s scary not to have that option.

So can these “rules” be enforced? Once you sign a mortgage, aren’t you able to decide these things for yourself, as need dictates?
I’m an honest person & wasn’t intending to commit mortgage fraud. It’s unfair to say that…it should be clear that I just don’t understand the rules, that’s all.

When you buy a house, you’re considered the homeowner, right? You don’t have to have your mortgage company’s permission to get a pet, but you would need your landlord’s permission if you were renting. And yet homeowners can be legally prohibited from renting out their home if unforeseen circumstances arose? I fully intend to inhabit the property but I didn’t like having my options restricted in case of an emergency or something. I mean, what if someone needs to move out of state in the future but for whatever reason the house won’t sell? It’s wrong to prevent them from renting it out since they’re the HOMEOWNER.

The companies offered low interest rates but had this clause in the contract. Just wanted to know if it was legal/enforceable & I still really don’t know.

8 Comments
  1. Reply
    spcleet
    July 21, 2011 at 1:59 am

    You can’t do what you want because your paying a mortgage, the house is technically theirs. For example, you don’t pay them, they foreclose your house and take it away.

  2. Reply
    zeuz
    July 21, 2011 at 2:27 am

    So can these “rules” be enforced? Once you sign a mortgage, aren’t you able to decide these things for yourself, as need dictates? –

    Generally speaking, the clause applies strictly for the first 12 months. After that, facts & circumstances can mitigate. For example, if you’ve been living in the house for 5 years and get a job offer in another state, you would be allowed to rent out your house if you choose to do so.

  3. Reply
    kenny c
    July 21, 2011 at 3:03 am

    You are allowed a lodger but only in you are living on the premises too.
    The mortgage company will want your lodger to sign a tenant waiver letter relinquishing tenant rights and promising to vacate the premises in 7 days if requested

  4. Reply
    Mark
    July 21, 2011 at 3:18 am

    “When you’re a homeowner, can’t you do what you want with your own property?”

    Not until AFTER you’ve paid the mortgage off, silly goose! (Even then you have to follow local use laws…)

    The rules can (and often are) enforced by simply “calling” the mortgage, or telling you you have 28 days to settle in full or the lender will sell your house…

  5. Reply
    kc
    July 21, 2011 at 4:09 am

    Most mortgages have a year requirement for owner-occupancy. There isn’t much enforcement of this, but if caught your mortgage company could call the note and expect you to pay for the entire loan because you broke the terms. I would get a loan that allows for renting the unit after a reasonable time. The increased rate is a great peace of mind in case you need to rent the house at a later date.

  6. Reply
    Landlord
    July 21, 2011 at 4:15 am

    No, you are not, they have a lien, ands offs are they are the majority owner.

    They simply call the note due on breach of contract if you violate the terms. They WILL foreclose if you can’t pay off the entire note.

    Just do what the rest of use normal people do, get an investment loan.

    Also, since you are thinking it is OK to defraud a bank, you are likely also thinking it is OK to scam the insurance company too. I will tell you, if you violate any terms the entire policy is void. Your insurance will be wordless if you BS them and tell them you occupy when you do not.

  7. Reply
    FarmGirl13
    July 21, 2011 at 4:33 am

    yes it is legal for them to prevent you from doing so. they can press criminal charges and have you thrown in prison for mortgage fraud even if it was not your initial intent. the mortgage is cheaper for owner occupied homes vs rental or investment property so by you renting out the property you are technically stealing from the lender since the rates are controlled by the federal government and have a huge interest rate gap. it is enforcable and I would not do it. if they check, you can lose the home and go to prison. they are activley enforcing this now and doing “pop ins” in my area

  8. Reply
    Rob Nock
    July 21, 2011 at 4:48 am

    First of all, the advice you are seeking is legal advice. I am not a lawyer and I doubt that most of the people answering you are lawyers either so be very cautious of taking advice. Most banks will work with you to manage a loan but they are giving you special consideration in the form of a lower interest rate because the property is owner occupied. My experience has been that most banks will not foreclose on a loan that is being kept current if the owner decides to relocate.

    Instead they will usually try to increase the interest rate (it may even be spelled out in the contract that your interest rate increases if you are no longer an occupant of the property). Banks don’t want your real estate, they want your money! But they operate under state and federal regulations that govern how they can lend their funds and also have to answer to the investors who own the bank.

    You are not trying to defraud the bank just because you are thinking about the consequences of conditions in the contract, you are simply being prudent. My view is that you get the loan under the conditions you expect to be living under when you go to settlement. As long as you maintain a good relationship with the bank, keep your payments up to date and advise them if your circumstance change they will most likely help you adjust the loan or re-finance the property if you ever need to move out of the building.

    My wife and I have had several loans that were based on owner occupied conditions and the bank has always worked with us to make sure there were not any problems if circumstances changed.

    HTH. Good luck!

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