Conventional Mortgage Rental Rules: Renting Out Your Newly Purchased Home

Answer

Many buyers wonder whether they can rent out a property financed with a conventional mortgage. Conventional loans—backed by Fannie Mae or Freddie Mac—typically carry an owner‑occupancy requirement, but you still have options if you’d like to turn your home into a rental down the road.

Owner‑Occupancy and Timeframes
With a standard conventional loan, you must occupy the property as your primary residence for at least 12 months from the loan’s closing date. During this period, lenders expect you to live in the home for a minimum of 50 percent of the calendar days in each 12‑month period. Renting before this window ends can trigger a loan default.

After the First Year
Once you’ve met the 12‑month occupancy rule, you may convert the home into a rental. Keep in mind:

• Notify your lender: While many lenders do not require formal approval after 12 months, it’s recommended to inform them to avoid misunderstandings.
• Adjust insurance: Switch from homeowner’s to landlord insurance to cover liability and property risks.
• Review tax implications: Rental income is subject to passive activity rules. Buyers are recommended to verify allowable deductions (e.g., mortgage interest, depreciation) with a tax professional or via the IRS passive activity guidelines.

Alternative Financing: Second Homes & Investment Loans
If you plan to rent immediately, consider:

• Second‑home mortgages: Allow limited personal use and occasional rental (up to 14 days/year) but prohibit long‑term tenants.
• Investment property loans: Require at least 20 percent down, come with higher interest rates, and expect you to operate the property as a business from day one.

Choosing the right loan type up front can save you from refinancing costs later. Conventional loans usually require a minimum down payment of 5 percent for primary residences, 10–15 percent for second homes, and 20 percent for investment properties.

Before making any decisions, it’s advisable to consult your lender and a licensed real estate attorney to confirm specific loan terms, regional regulations and tax impacts. Proper planning helps you transition smoothly from homeowner to landlord.