Yes, you can rent out a house financed with a conventional loan, but the timing depends on how the loan was written. If it’s a primary-residence loan (which most conventional mortgages are), you agreed to move in within 60 days of closing and live there for at least 12 months before turning the property into a rental.1Fannie Mae. Occupancy Types After that first year, you can lease the home to tenants and keep the original mortgage in place. If the loan was written as an investment property from the start, you can rent it out immediately, but you paid more up front for that flexibility.
The Occupancy Rule You Agreed To
Closing on a primary-residence conventional loan involves signing an occupancy affidavit — a sworn statement that you intend to live in the home. Under the Fannie Mae and Freddie Mac guidelines that govern most conventional loans, that means moving in within 60 days of closing and occupying the property as your main home for the first 12 months.1Fannie Mae. Occupancy Types Lenders price primary-residence loans lower because owner-occupants default less often, so the occupancy promise is what you’re trading for the better rate and smaller down payment.
During that first year, the property can’t be a full-time rental. Renting a spare bedroom or an accessory dwelling unit while you still live there is a different situation; the test is whether the home remains your principal residence.
Servicers don’t rely on your word alone. Fannie Mae’s quality-control guidance lists the ways they confirm occupancy: checking whether your homeowners insurance has been switched to a landlord policy, comparing the address on your driver’s license, looking for a homestead exemption, tracking mail returned from the property, running searches in mortgage registries to see if you’ve taken out a new primary-residence loan somewhere else, and sending someone to knock on the door.2Fannie Mae. Getting It Right – Reverification of Occupancy
When Life Forces an Early Move
Sometimes you genuinely cannot stay the full 12 months. A job relocation, a divorce, a family medical crisis, or a military deployment can make continued occupancy impossible. Most occupancy clauses accommodate circumstances beyond your control, but you need to notify your lender in writing as soon as the change happens. Send a letter of explanation and keep a copy. The distinction lenders draw is between a borrower who discloses a life change and one who planned to rent from the beginning; that distinction separates an approved exception from a fraud investigation.
Converting the Home to a Rental After Year One
Once you’ve satisfied the 12-month residency requirement, you can move out and lease the property without refinancing or paying off the loan. The mortgage’s due-on-sale clause is not triggered by leasing, because you’re keeping the home in your name rather than transferring it.3Office of the Law Revision Counsel. 12 U.S.C. 1701j-3 – Preemption of Due-on-Sale Prohibitions The lender side is straightforward. The other obligations that come with becoming a landlord are not.
Switch Your Insurance
A standard homeowners policy covers a home you live in. Once a tenant moves in, that policy no longer matches how the property is used, and a claim can be denied on that basis. Replace it with a landlord policy (sometimes called a dwelling fire policy), which covers the structure, your landlord liability, and typically lost rental income if a covered event makes the property uninhabitable. Do this before the tenant moves in so there is no gap.
Tell Your Mortgage Servicer Where to Send Mail
Give the servicer your new mailing address so you keep receiving correspondence, including the annual Form 1098 that reports the mortgage interest you paid.4Internal Revenue Service. Instructions for Form 1098 You need that form to deduct the interest on your return. Keeping the servicer informed also prevents confusion if quality-control checks flag a change in how the property is used.
Check the HOA Before You List
If the home is in an HOA, read the CC&Rs before advertising it. Associations commonly cap the number of rentals allowed at one time, require minimum lease lengths of six or twelve months, require the lease to be submitted for review, or ban short-term rentals outright. Some require you to live in the home for a set period before renting — sometimes longer than the lender’s 12 months. Violating these rules can trigger fines or force you to remove the tenant.
Local Permits, Fair Housing, and Lead Paint
Many cities require a rental registration or license before you can lease a home, and some require periodic inspections as a condition of the permit. Requirements and fees vary, so check with your local housing or building department.
Federal fair housing law prohibits discrimination in advertising, screening, and lease terms based on race, color, religion, sex, national origin, familial status, or disability.5Office of the Law Revision Counsel. 42 U.S.C. 3604 – Discrimination in the Sale or Rental of Housing Small-scale landlords who are otherwise exempt from parts of the Fair Housing Act still must comply with the ban on discriminatory advertising and statements. State and local laws often add protected classes.
If the home was built before 1978, federal law requires you to give the tenant an EPA-approved lead paint pamphlet, disclose any known lead-based paint, share available lead inspection reports, and include a lead warning statement in the lease. Keep a signed copy of the disclosure for at least three years from the start of the lease.6eCFR. 24 CFR Part 35 Subpart A – Disclosure of Known Lead-Based Paint Hazards Upon Sale or Lease of Residential Property
How Your Taxes Change
Renting the home changes what you report and how you report it. Three pieces matter most.
Reporting Rental Income and Expenses
Rental income and expenses go on Schedule E.7Internal Revenue Service. Topic No. 414 – Rental Income and Expenses Deductible expenses include mortgage interest, property taxes, insurance premiums, repairs, and property management fees. You’re taxed on the net.
Depreciation and Recapture
Once the property is placed in service as a rental, you depreciate the building’s value (not the land) over 27.5 years on a straight-line basis.8Internal Revenue Service. Instructions for Form 4562 – Depreciation and Amortization It’s a paper deduction — no cash leaves your pocket for it — but any depreciation you claim, or could have claimed, is recaptured as ordinary income when you sell, taxed at a maximum rate of 25 percent.9Internal Revenue Service. Selling Your Home The deduction now comes back at sale.
Protecting Your Capital Gains Exclusion
Section 121 of the tax code lets you exclude up to $250,000 of gain from the sale of your main home ($500,000 for married couples filing jointly), provided you owned and lived in it for at least two of the five years before the sale.10Office of the Law Revision Counsel. 26 U.S.C. 121 – Exclusion of Gain From Sale of Principal Residence Renting starts a clock. Time you spent not living there counts as “nonqualified use,” and the portion of your gain allocated to those rental years generally can’t be excluded.
There is an important exception. Any rental period that comes after the last date you used the home as your principal residence is not counted as nonqualified use.10Office of the Law Revision Counsel. 26 U.S.C. 121 – Exclusion of Gain From Sale of Principal Residence In practice, if you live in the home for several years, move out, rent it for up to three years, and then sell, you can still meet the two-out-of-five test and keep the full exclusion. Rent longer than three years and you fall outside the five-year lookback and lose it. Depreciation recapture applies either way.
Using the Rent to Qualify for Your Next Home
If the reason you’re renting the current home out is to buy a new primary residence, the projected rent may help you qualify for the new loan. Fannie Mae lets lenders count rental income from a departing residence, but only 75 percent of the gross rent — the other 25 percent is assumed to cover vacancy and maintenance.11Fannie Mae. Rental Income
How much of that 75 percent your lender can apply depends on two things: whether you currently have a housing payment, and whether you have property management experience. With both, the rental income can be used without restriction. Without a current housing payment but with management experience, the rental income can only offset the mortgage payment on the rental itself. Without either, no rental income counts toward qualification.11Fannie Mae. Rental Income
The lender documents the projected income through a comparable rent schedule ordered with the appraisal, or through a signed lease if you already have one. With a lease, you’ll typically need proof it’s in effect: two months of consecutive rent deposits, or copies of the security deposit and first month’s rent with proof of deposit.11Fannie Mae. Rental Income
If You Never Plan to Live There
When you know from the start that the home will be a rental, finance it as an investment property. There’s no occupancy requirement, and you can lease it from day one. The trade-off is cost.
Fannie Mae sets the minimum down payment for a single-family investment property at 15 percent, though many lenders require 20 to 25 percent depending on your credit profile.12Fannie Mae. Eligibility Matrix You’ll also need at least six months of mortgage payments in liquid reserves to show you can cover the loan through a vacancy.13Fannie Mae. Minimum Reserve Requirements
Interest rates are higher because Fannie Mae applies loan-level price adjustments to investment properties, ranging from 1.125 percent to 4.125 percent of the loan amount depending on your loan-to-value ratio. Lenders pass those through as a higher rate or additional upfront points.14Fannie Mae. LLPA Matrix Starting with the right loan classification is more expensive up front and avoids the legal exposure of misstating occupancy.
What Happens if You Lie About Occupancy
Claiming you’ll live in a home to get the primary-residence rate and down payment while intending to rent it out immediately is occupancy fraud. It’s a federal crime under 18 U.S.C. § 1014, which covers false statements on loan applications, and carries fines up to $1,000,000 and a prison sentence of up to 30 years.15Office of the Law Revision Counsel. 18 U.S.C. 1014 – Loan and Credit Applications Generally
Prosecution isn’t the only risk. If the lender discovers the misrepresentation, it can invoke the acceleration clause in the mortgage and demand the entire remaining balance at once. Failure to pay typically leads to foreclosure, even if you’ve never missed a monthly payment. Credit damage follows, and future mortgage financing can be off the table.
The verification tools Fannie Mae describes — insurance policy reviews, address cross-checks, homestead exemption records, mortgage registry searches, and physical property visits — are used on an ongoing basis as part of post-closing quality control, not just at closing.2Fannie Mae. Getting It Right – Reverification of Occupancy The exposure runs through the life of the loan.