Are you required to refinance into a non-owner occupied mortgage if you rent out your home?
As long as you were truthful and accurate on your original mortgage application and continue to make your monthly payments on time, renting out the property should not create an issue and you should not be required to refinance your loan.
When you take out a mortgage on your primary residence, lenders typically require that you live in the property for at least a year after your loan closes. Lenders apply this guideline so that borrowers do not falsify their loan application and immediately rent out a property that they said they would live in.
Mortgage terms are different for owner occupied and non-owner occupied loans. For example, the interest rate for a mortgage on your primary home is lower than the rate for a rental property mortgage. Additionally, the down payment requirement is also lower which makes it easier to qualify for the loan and buy the property.
The differences in loan terms are attributable to different risk profiles for a mortgage on your primary residence as compared to a rental property. In short, due to possible vacancies and unexpected costs, non-owner occupied mortgages involve more risk so they are more expensive than a standard loan.
Despite these differences, if you have lived in the property for at least a year, you are usually not required to refinance into a non-owner occupied mortgage if you decide to rent out your home.
If you are in within a year of your loan closing, renting out your home should not pose a problem and you should not be required to refinance as long as your personal circumstances changed from when you submitted your mortgage application. For example, if you moved to a new city due to a job transfer or your personal or financial situation changed significantly, then renting your home should be fine.
In most cases the lender does not become aware that you are renting the property if you continue to make your monthly payment. In these scenarios, however, it is still important to be able to document how your circumstances changed if it ever becomes an issue with the lender.
If you decide to rent out the home within a year because that was always your plan but you wanted to qualify for better loan terms, then this could be interpreted as mortgage fraud. We strongly advise against this strategy.
One final point to consider if you rent your home is that you should contact your homeowners insurance company to determine if you need to update your policy. The insurance coverage required for a rental property is different than for your primary home.
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