We all know buying a home is not cheap, however, there are some things you can do to help you get your mortgage payments to the bank on time no matter how big it is. Here is one way you can help yourself with your mortgage payments – rent out your basement, or a bedroom in your home. However, there are some guidelines you will want to ensure you are following before you just throw your room or rooms on the market as a rentals.
1. The first thing you want to check is to ensure legality.
Depending on where you are located, there may be specific zoning laws that make it illegal to have more than a certain number of residents in a home. You should also speak to your local government to ensure that you can take on “boarders” or “renters.” There are laws in some states or even cities that allow you to take on a certain number of tenants or require a permit to take on tenants. We could not find any specific laws that limit renters in Utah.
2. Check your insurance policy.
You may have to take on a slightly different policy if you decide to take on renters. Renting rooms can change your policy, even if only slightly. You may need to require renters to take on their rental insurance so that their belongings are covered.
3. Decide if renting to acquaintances, friends or strangers is the best decision for you.
There are some people that prefer to live with friends and others who find living with complete strangers easier. Some find that living with friends can ruin relationships. However, if you do decide living to live with strangers, we would recommend running background checks and even possibly holding interviews with potential renters. Essentially, no matter what you decide to do, to treat it as a business relationship or tenants who are friends may end up taking advantage of the situation.
4. Determine what to charge.
This is one of the hardest things to determine when choosing to rent your home. If your rent is too high, you will have trouble finding tenants. If it is too low, you may not want the renters that apply. To help you determine a rental price, you can research similar rental properties, in similar locations or in your neighborhood on Zillow, Rentler or ApartmentList.com.
5. Use a Written Lease.
It does not matter if your best friend is renting your room. If you are a landlord, you should act like one. You need to create a standard, state-approved lease. You can usually find these online for a small fee. If you cannot find one or do not want to create one, be aware that all state and local landlord-tenant laws are still applicable. One landlord who rents out her space to help her pay her mortgage suggests creating a month-to-month lease to create an easy out for changes in circumstances, or personality issues.
6. Tax Payments
You must report income from renters – and if you do not you may need to pay back-taxes to compensate the interest, or any penalties you may have missed if the IRS decides to audit you. Speak with a tax professional if you decide to rent out your home, to ensure you are doing your taxes correctly.
7. Be ready for an Exit Strategy
Even if you never plan to start a family, move or get married, you should always have an exit strategy ready. Write an exit strategy into the lease you create to ensure you have a way to get out if something in your life changes.
If your plan is to rent before you even purchase your home, speak with your loan officer. Some types of loans allow you to include renter’s income on the application – which can help your debt-to-income calculations and create the ability to qualify for a larger loan. You usually have to prove that the renter has been with you for 12 months and will continue on with you. Check with your local government, lender or housing authority to ensure that no other restrictions apply.