What Happens to Your Mortgage When You Temporarily Rent Out the Property

Quick overview

Temporarily renting a home you still have a mortgage on can be straightforward — but it’s not automatic. Many mortgages include occupancy clauses that expect the borrower to live in the home for a set period. If you ignore those clauses, you risk contract violations, changes to loan terms, or even lender remedies. At the same time, insurance and tax rules change once a property becomes a rental (see IRS Pub. 527).

What lenders typically care about

• Occupancy clauses: Most mortgage notes or loan agreements require owner occupancy for a defined time after closing. Government-backed loans commonly have stricter rules (for example, FHA and many VA loans include owner-occupancy requirements). Always read your promissory note and mortgage deed for specific language (HUD/FHA guidance; VA loan pages).
• Default and remedies: If you rent without permission and your loan forbids it, a lender could declare a breach and pursue contractual remedies. In practice lenders usually act when there is default or a sale, but notification is the safe route (Consumer Financial Protection Bureau).
• When lenders allow renting: Many conventional lenders will permit temporary rentals if the borrower remains current and notifies the servicer. Some lenders will ask you to convert the loan to an investment mortgage or add conditions (see our guide on converting an owner-occupied loan to an investment mortgage).

Insurance: swap or update your policy

Your homeowner’s policy is written for an owner-occupied residence and often excludes rental-related liability. Before you list the property:

• Tell your insurer you plan to rent. If your current policy doesn’t cover tenants, buy landlord (dwelling) insurance to cover liability, loss of rent, and different perils.
• If you have a mortgage, the lender will require continuous hazard insurance — don’t let coverage lapse.
  See our Homeowners Insurance overview for what to check.

Taxes and reporting

• Rental income is taxable and generally reported on Schedule E (Form 1040). Use IRS Publication 527 for rules on what’s deductible (repairs, mortgage interest, property taxes, depreciation) and how to report income.
• Short-term vs long-term rentals: If you rent while still treating the property as your home (e.g., short-term subletting during a temporary absence), different rules may apply — document dates and usage carefully.
• Capital gains exclusion: Renting the home can affect your eligibility for the home-sale capital gains exclusion (up to $250k/$500k) because you must have used the property as your primary residence for 2 of the last 5 years to qualify (see IRS Publication 523).

Practical checklist — steps I use in practice

1. Read your mortgage documents for occupancy language.
2. Call the servicer and ask whether a temporary rental is allowed and whether you must get approval or switch loan status.
3. Update insurance to landlord/dwelling coverage before tenants move in.
4. Keep clear records: rental agreements, rent receipts, repair invoices, and tenant move-in/move-out dates.
5. Track income and expenses for Schedule E and depreciation; consult a CPA on tax treatment.
6. Consider converting to an investment loan or refinancing if you plan to keep the property as a rental long-term (see our article on refinancing rental property mortgages).

Common mistakes I see

• Failing to notify the lender and insurer — this creates easily avoidable breaches and coverage gaps.
• Treating tenant damage as a tax-deductible repair without proper documentation.
• Assuming capital gains exclusion won’t be affected after several years of rental use.

When to consider a formal conversion or refinance

If the rental is temporary (months to a couple of years) most borrowers can stay on their current loan after notifying the servicer. If you expect to keep the property as a rental longer-term, a refinance to an investment property product can reduce future friction and align underwriting with rental cash flow.

Short real-world note

In my practice, a client who notified her lender and moved to landlord insurance had no issues: the servicer recorded the change and her rate stayed the same. Another client who didn’t inform the servicer later faced requests for immediate documentation during a refinance — an avoidable delay.

Where to learn more

• See our deep dive on how occupancy changes can trigger lender actions: How Occupancy Changes Can Trigger Mortgage Callbacks and Remedies.
• If you need coverage details, read our homeowners insurance primer: Homeowners Insurance.
• For options if you plan to keep the property as a rental, review: Converting an Owner-Occupied Loan to an Investment Mortgage.

Bottom line

Temporarily renting a mortgaged home is workable if you follow the paperwork: notify your lender, update insurance, and track taxes. Taking those steps prevents contract violations, protects against liability, and simplifies your tax filing. For complex situations, consult a mortgage professional and a CPA (CFPB; IRS Pub. 527).

Disclaimer: This article is educational and not individualized legal, tax, or lending advice. Consult a licensed mortgage professional, attorney, or tax advisor for guidance tailored to your situation.