Just the other day we were asked if it’s OK to get landlord insurance for a home if you move out of it and wind up renting it to someone else.
This particular individual was worried about doing so because their mortgage loan documents stated that they intended to occupy the home as their primary residence.
Basically, this client was concerned their home mortgage may be negatively affected if their lender “got wind” they had moved out. The rub here is that mortgage lenders charge a higher interest rate for properties held for rent than they do for loans tied to primary residences.
Note: Insurance is generally more expensive on a property held as a rental than it is for a primary residence as well. Let’s face it. Renters typically don’t take care of a home as well as the property owner would if they lived in it themselves.
The concept, known as “pride of ownership,” is the same for mortgage lenders as it is for insurance companies.
How Would My Lender Find Out About the New Insurance?
Any time a mortgage loan is present on your property; your lender keeps track of your property insurance.
If your policy cancels, your insurer sends the insurer prompt notice that they will provide you with lender forced coverage until you get a new policy in place.
On the same note, if you switch homeowners insurance companies or change your policy type – from a homeowners policy form to a landlord policy form – your lender is notified as well.
Can There Be A Problem?
There is really nothing your lender can do to modify your mortgage if you decide to move out of your home and purchase a landlord policy.
So, you have nothing to worry about. Your lender makes you sign off when you initially purchase your mortgage loan to attest to the fact that you “plan” on living in your home as a primary residence.
If you’re honest at the time and things change later, it’s really none of their business.
The reason your lender asks in the first place is to make sure they don’t get tricked into giving you a lower interest rate than you deserve if you don’t really plan to occupy the property.
To be crystal clear, your lender won’t flinch a muscle if you move somewhere else, keep your home as a rental property, and purchase a landlord policy.
One More Thought
Just make absolutely sure to contact your insurance company or insurance agent if you move out of your primary residence and decide to rent the property to a tenant.
There is a difference between the two policy types and you need to have the correct form of coverage.
You might even find that your current insurer doesn’t offer insurance on rental properties, which would force you to seek out a new insurer.
Finally, if you move out of your home and leave it vacant, perhaps while it’s on the market for sale, you’ll need to tell your agent about that as well. This is known as unoccupied home insurance.
Most home insurance policies contain a coverage clause that says if your property is vacant (usually 60 days of not being occupied), the coverage changes drastically.
For example, your home may only be covered for its actual cash value rather than replacement cost.
This could mean the difference of tens or hundreds of thousands of dollars in lost money if you suffer a large property damage claim and your home was deemed to have been vacant at the time of the loss.