Thinking of renting out your home? Here are some tips

Some people become accidental landlords because of a job change or difficulty selling a house. Others need to rent out the home of an elderly parent who has moved into a care facility. Here are some tips if you’re planning to rent out your home.

Notes from Bruce:  This is a good article for things to do while you get ready to rent out your home. One of the biggest hurdles i run into on the lending side for my clients is what they can claim for income on the home they are going to rent out.  This was much easier prior to 2010 and was very straight forward. You get a rental agreement and a deposit and we could use 75% of the new rent amount for your rental income.  Now this amount sometimes had to be verified by an appraiser doing a market analysis for the neighborhood, but it was pretty straight forward.

Fast forward to 2014 and current guidelines for Fannie Mae, Freddie Mac and even FHA or VA and things changed quite a bit.  First off if you are moving out of this home and buying a new home, it becomes the “vacating property” issue. Meaning there has to be at least 25% equity in the home and you must have the new tenant in place with a deposit from them and copy of that deposit check and proof it cleared your account.  VA loans can vary (for the equity required)  a bit if you are currently enlisted and moving to a different state due to orders, such as from Alabama to Joint Base Lewis McCord here in Tacoma.

Another part that some lenders will want to see also is proof that you have been a landlord for the prior year on another home per your tax returns. If you have not collected rental income on another home, be prepared to qualify for your old home that you are moving out of, and for the new home you want to buy.

You might wonder why the reason for these changes and it makes perfect sense. Too many people were buying a new home, and then once they are closed on it, they would let the old home go to foreclosure since they were upside in it, and they couldn’t afford both homes.  You are less likely to foreclose on a home if you have some decent equity in the property and that is where the 25% rule comes into the effect.

One last piece that will be required by Fannie Mae and other lenders is reserves for the mortgage payments on both homes. Typically what will be needed is 6 months of payments ( including taxes, insurance and any mortgage insurance) and then 2-3 months of payments for the new home you are buying.

As any time, when you have a question please feel free to reach out to me and see how this will effect your next home purchase and lets work on a strategy together to prepare.    Bruce

Original Article from Seattle Times  

Cynthia Kent and her husband, John, didn’t set out to be landlords, but career choices made it necessary.

“We have rented out our home in Florida for nine years because we move all over with the military,” says Kent, who recently relocated her family from Nevada to Alabama for yet another posting.

Some people become accidental landlords because of a job change or difficulty selling a house. Others find they need to rent out the home of an elderly parent who has moved into a care facility.

More than 3 million owner-occupied homes were converted to rental properties between 2007 and 2011, according to a 2013 report by the Joint Center for Housing Studies at Harvard University.

Some advice for those taking on this challenging new role:

Find the right tenant

A credit check and legal background check can help you find reliable, honest tenants, says real-estate agent Gail Carpenter of Northwood Realty in Pittsburgh.

“Sometimes a credit check alone” will rule out an applicant, she says.

Personal references can be useful if the applicant is local and you have mutual acquaintances. Otherwise, be wary.

“Do not take ‘personal’ references too seriously,” says New York City condo owner Sharon Lynch, who rented her home to tenants while spending a year in California. “Anyone can get a friend to write something nice about them.”

Lynch suggests using an online directory to search for an applicant’s current address and get contact information for their neighbors.

“Not only can these people tell you if your applicants are good neighbors, but they can also supply you with the landlord’s contact information,” she says, “just in case your potential tenant is faking you out, pretending a friend was his or her landlord.”

Meet applicants in person and really talk with them, Carpenter says.

And request a rent that doesn’t price good applicants out of the market. You might earn more over time with a slightly lower rent, she says, because “that can help you keep your property occupied, versus asking for the moon and then it sits there vacant.”

Prep the house

Once you’ve found your tenant, clean your home thoroughly and “make the property as safe as it can be,” Carpenter says.

You may also want to tackle any looming home-improvement jobs now, rather than leave your tenant to handle — or ignore — them when they become larger problems.

If you plan to return to the home eventually, it can be practical to drop the rent slightly and fill one room with belongings you’re leaving behind, rather than paying for a storage space. Put a new lock on that door and take the key with you.

Document and discuss

“It helps to take pictures of the house inside and out,” Kent says, to document its condition and cleanliness.

Don’t skip anything, and don’t assume one panoramic shot of each room will do. If you’re leaving furniture, also photograph the condition and cleanliness of each piece.

When Lynch returned to find her tenant had damaged the kitchen countertop, such “before” photos were key in being able to use the tenant’s security deposit to help pay for repairs.

When your tenant arrives to inspect the home before moving in, Kent says, “have tenants sign a document of the pictures, showing the condition at move-in.”

That walk-through inspection is vital for both parties. “Always be present for the move-in and move-out inspections,” says Babette Maxwell, who has rented her home to tenants several times during her husband’s Navy career and founded Military Spouse magazine to advise other military families about challenges like this one.

Also, Maxwell suggests, “Provide your renter with a baggie of ‘approved’ nails, screws, picture hangers.” And if you “have specific products you want used on your counters, cabinets, floors, yard,” she says, “list them in the lease.”

Tend the outdoors

As you negotiate the lease, don’t forget to have a detailed discussion about outdoor space, too. Will you or the tenant pay for lawn cutting? Who will keep up with pulling weeds and trimming bushes? Is the tenant permitted to plant flowers and do other gardening?

You may want to do an outdoor cleanup before you leave and then have the tenant agree to maintain that level of neatness.

Scan the property for any trees that could fall on the house and assess their health. Better to pay now to have a sick tree removed than worry about the outcome of a storm.

Plan ahead

If there are repairs or upgrades that you promise your tenant, set a schedule in your personal calendar for completing them in the weeks after they move in.

Kent also recommends leaving a “welcome binder that stays with the house with local information, cleaning requirements and other details.”

Make sure your tenant knows how to contact you and how to handle problems that might arise. Have a reputable contractor or other professional on-call in case something needs to be repaired, says Carpenter.

“A lot of landlords grumble about getting a call in the middle of the night,” she says, but things will inevitably happen.

Then, stay in touch. If you won’t be living close enough to check on the property yourself, arrange for a friend or hire a property manager to do so.

Being a landlord “is not just signing the lease and disappearing,” Carpenter says. A tenant will respect you and your property more if you remain involved.


All page content by Bruce McLaughlin Eagle Home Mortgage 1029 East Main Puyallup WA 98372 NMLS 70081 253-651-5755 Contact me directly for any questions