How do we turn our current home into a rental property?
We are in the process of purchasing another home and would like to turn our current home into a rental property (we have already been approved to carry both loans). Our current loan is an FHA loan, and we have lived in the house for almost 3 years. Is it legal to do this with an FHA loan?
Also, do we have to change our homeowner’s insurance, and is it more expensive for rental properties?
You have been in the first house long enough to convert it to a rental without jeopardizing your financing.
You will change the homeowners’ policy into a tenant’s policy. Be sure to get special form coverage (the best you can buy). The premium will probably be less but so will the coverage. Be sure to require your tenants carry a tenant’s policy as well.
Most of the time,no. FHA generally doesn’t like people renting out the property they have lended on.Under some conditions it may be possible if you talk it out with them and possibly come to an agreement. However, don’t hold your breath.Rental property insurance usually has higher liability limits than the normal homeowners policies. In that respect, the rates can be higher. However,sit down with your agent and work out the best mix of coverages that you think you need. It generally isn’t that much more expensive. I hate to say it and seem dishonest,but what the lender doesn’t know can’t hurt them…ya know what I mean?
You do have to change the insurance, otherwise if you need it they can just cry fraud and you are SOL.
It will cost more for property coverage, BUT you no longer pay anything for personal property (your TV, jewelry, etc), so it come out about the same. You can not cover items that you do not own, so the renter also needs insurance.
Have a CPA help you with taxes, as you will have the additional income tax to deal with.
First, you’ll probably have to register the property as a rental property with your local municipality.
Second, you’ll have to change your hazard insurance to cover a rental property instead of your primary residence.
Third, you’ll probably need a lead paint inspection done, and you’ll subsequently have to give them a lead paint pamphlet along with the lease agreement (see the site below for both).
http://www.ezlandlordforms.com/documents/lease_agreements/
Fourth, you’ll have to change the mailing address for any official correspondence from your state/municipality. Go to their website(s) and look for your local assessment/taxation office.
Good luck!