If you are behind on mortgage payments, you may be thinking about how to catch up. One thing you may want to consider is to rent out a room or your house. If you decide to do this, you should tell your mortgage lender. The lender might charge you a small fee, but they most likely won’t raise your rate or deny you. However, if you are buying a home solely to rent it out, you must tell your lender. The lender will charge you a higher rate. Additionally, a lender may not accept proposed rental income if you have been a landlord for less than two years.
You can still live in the home and rent out a room while living there. However, if you want to refinance your mortgage, you will not be able to use the rental income as a qualifier. In other words, you can use the income to pay the mortgage but you can’t use it to qualify for a new loan.
Once you have decided to rent out your home, here are some steps that you should follow.
- Think of an ideal tenant
- Ideally, you want a tenant who will pay rent on time, keep the property clean, and won’t attract trouble to your home.
- Run an ad
- Put an ad in a local paper or a website like Craigslist. Make sure to make the ad is as specific as you can. Include information such as monthly rental fee and who would be paying for services such as utilities, water, and trash removal. Let applicants know that you’ll be running a credit check. This will weed out applicants with bad credit histories.
- In addition to the ad, the application should be specific. The application should give you a lot of information about the potential tenant, including:
- Name
- Employer
- Salary
- History of landlords, including contact information, and reasons for leaving previous units
- References
- Names of proposed occupants
- Social Security number (for credit check)
- Criminal Record
- Run a credit check
- Once you have applicants, run a credit check. This will help you determine whether the possible tenant has the ability to pay rent on time.
- Check references
- Talk to previous landlords and employers. Ensure that the applicant is employed and that they have made on-time rent payments in the past.
- Set lease terms
- When renting out your home, always have a lease. Check lease laws with your state, as each state is different. When creating a rental agreement, include:
- Lease term: If you want to eventually sell your property, a month-to-month lease works best. However, if that is not your end goal, a year-long lease may be better.
- Security deposit: Receiving the first and last month’s rent as a deposit is recommended.
- Rental due date: Setting the rent due date as the first of the month is recommended as it allows you to make your mortgage payment.
- Landscaping: Determine who will pay for property maintenance, such as lawn care and trash.
- Repair responsibilities: Determine who will pay for repairs on things such as appliances, lighting, and plumbing.
- “Good conduct” clause: List out behavior requirements, such as noise levels, neighborly conduct, and smoking.
- List of tenants: List the names of each tenant living in the home.
- Pet policies: Determine whether or not you will allow your tenants to have pets, or what type of pets you will allow in your property.
- Eviction terms: Determine for what reasons you would evict a tenant, such as not paying rent.
- When renting out your home, always have a lease. Check lease laws with your state, as each state is different. When creating a rental agreement, include:
Once you have a tenant, you can start saving to catch up on your mortgage payments. If you are renting out your room or home because you need cash, it’s time to stop using your credit card and start using a budget!
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