Is it possible to rent out an apartment with a mortgage, pros and cons

Mortgage is the most popular banking product in recent years throughout Russia. And the fact that it is the real estate purchased with the money received that is pledged is only beneficial to the borrower, since at least he does not risk what he already owns. But at the same time, he does not have full ownership of this object. In this article we will tell you whether it is possible to rent out an apartment taken with a mortgage.

What does the law say about renting out a mortgaged apartment?

The first paragraph of Article 40 of the Federal Law “On Encumbrance” clearly states that the owner of real estate purchased with a mortgage, on which loan payments are still being made, have the right to rent out this apartment/house, unless the mortgage agreement prohibits this and the following requirements are met:

The duration of the lease is no longer than the repayment period of the debt.
The collateral is not used for commercial purposes.
The delivery of real estate was carried out legally.

According to banks, leasing a collateral property reduces its liquidity and, accordingly, its market value. According to the Mortgage Law, the lender can hold the borrower liable if the collateral property is damaged or its price tag has been reduced beyond normal wear and tear. Based on regulations, banks have the right to prohibit renting out housing for daily rent, which will lead to rapid wear and tear.

How does the bank feel about renting out a mortgaged apartment?

If the owner has the right to rent out ordinary housing to anyone and for any fee, then in relation to a mortgaged apartment it is necessary to obtain the consent of the bank.

The possibility of leasing is fixed by the provisions of the mortgage law, but the process itself is also regulated by the clauses of the mortgage agreement. On the one hand, it is more profitable for the bank for the client to successfully pay off his debts, even with the help of rental money. On the other hand, renting out an apartment when the contract initially planned to purchase real estate for living means a violation of the very principles of mortgage. When real estate is acquired in order to generate additional income, credit relations go beyond lending to individuals, implying a commercial loan, the conditions for which are much more stringent.

For the bank, renting out entails an additional risk of misuse of housing and loss of its original value due to improper behavior of tenants. In the absence of proper attention to repairs and maintenance, the mortgaged apartment may lose its liquidity and attractiveness in the eyes of potential buyers if the question of forced debt collection arises.

Such concerns force lenders to insist on including a clause in the agreement prohibiting the use of housing for rent or requiring approval. Insurers will also not like the transfer of property for rent, since rates for housing used for commercial rental are higher.

What requirements do banks put forward when renting mortgaged housing?

In order to allow third parties to remove the collateral property, you must be guided by the mortgage agreement concluded with the banking institution. The most common conditions are:

The bank admits that the borrower can rent out housing without its approval.
The mortgage agreement does not say anything about renting the collateral property. The borrower needs to obtain information from the lender in this regard and act or fail to act after receiving a refusal or permission.
The lender clearly indicates the parameters of the service in the mortgage agreement: period, terms of the agreement, registration of the transaction, etc.
The borrower, when signing a lease agreement and moving strangers in, must find out whether the bank agrees to this.
Renting is strictly prohibited. Disagreement to rent out an apartment/house is associated with risks for the banking institution itself, since the resident strangers will have nothing to do with the financial obligation to the lender.

Most banks, of course, allow the rental of mortgaged housing, but only if the following conditions are met:

The borrower must submit a written application to the bank. Bank employees then promptly review it and provide a positive response if the client is in good standing, that is, makes all payments on time and maintains the home in good condition.
Insurers are notified that the cost of the property policy is increasing by approximately 20% - 30% of its original price. This increase is justified by the high risk of damage to housing.
Mortgage housing must be rented with the obligatory conclusion of a lease agreement, which stipulates all payment conditions.
A tax return is prepared for the year to pay income tax in the amount of 13%.
The borrower must provide the bank with a photocopy of the rental agreement, personal data and documentation of the tenant, and information from the insurance agency.

How to rent out an apartment with a Sberbank mortgage?

Is it possible to rent out an apartment with a mortgage from Sberbank? There is a legal and “gray” scheme for working with tenants. The first option involves close cooperation with the lender. In order for Sberbank to approve the conclusion of a lease agreement, it is necessary to draw up an application. It will be reviewed within 5 days. The application will be approved if the borrower fulfills the following conditions:

Making mortgage payments on time;
Satisfactory condition of the mortgaged apartment;
A detailed description of the reasons and circumstances forcing a person to rent out housing to tenants.

If the application is approved, then the owner of the living space needs to take a certificate from the Housing Office about the composition of the family and the notarized consent of the co-borrowers to enter into rental agreements. Also, the bank specialist should present a certificate of ownership of the residential space. Next, you should draw up an apartment rental agreement and an act of acceptance and transfer of material assets. After this, you need to open an account with Sberbank to deposit rental payments. After preparing all the necessary documents, the owner can start looking for tenants.

This is important to know: How to rent out part of a non-residential premises

Many people who have taken out a mortgage prefer to use “black” schemes for interacting with tenants. In this case, relationships with tenants may be limited to verbal agreements. Some apartment owners draw up a lease agreement, but do not indicate the amount of the monthly payment. No taxes are paid on illegal transactions. Someone gets too carried away with illegal earnings and starts renting out an apartment by the day. This rental option can cause significant damage to the apartment.

Is it possible to rent out an apartment purchased with a mortgage?

Banks that allow renting collateral housing

VTB Bank, Alfa-Bank, Sberbank, and Svyaz-Bank officially allow renting out collateral housing purchased with mortgage funds. According to the conditions specified in their mortgage agreements, actions to rent out an apartment/house are considered legal if the borrower notifies them in advance of his intentions in writing and receives consent.

Thus, since December 9, 2013, Sberbank has had general conditions for housing lending. And subclause 4.4.15 of the agreement states that the borrower does not have the right to rent out housing or rent it out for free use to relatives or friends without obtaining written consent from Sberbank. He is also entrusted with measures to help maintain the proper condition of the property, along with current and major repairs. Inspectors rarely check bona fide clients. Problems can only arise if you fail to make your mortgage payment on time.

VTB Bank also does not interfere with the rental of an apartment secured as collateral, but only if the borrower necessarily requests permission in writing in advance. On its official portal at the following link https://drive.google.com/file/d/1tTlJoSEwO_BXkEheTMIPX9RX-YnHEj9L/view you can find the procedure for obtaining permission to rent out a mortgaged apartment and an example application form https://drive.google.com/file /d/1J7ws7b72OYhAoPJVlH23qLiSkYIexLnr/view. According to the mortgage agreement, he still has the right to demand early repayment of the full loan amount along with accrued interest and penalties in the following situations:

The rules for using mortgage housing were violated.
The creditor was not informed about all the rights of strangers to the pledged property; other encumbrances.

Therefore, you need to inform the bank and insurance company about renting out a mortgaged apartment in order to avoid termination of the mortgage agreement and the application of sanctions.

We look at the mortgage agreement

To understand whether renting out an apartment registered as collateral with a bank is legal, you should be guided by:

Law “On Mortgage”.
Agreement with a credit institution.

The last document regulates the conditions of a specific lending case. If the mortgage agreement clearly states that the borrower is obliged to coordinate the delivery of real estate with the lender, then, in order to avoid problems, it is better to obtain written permission from the bank that holds the collateral.

The reconciliation option is a compromise way to resolve the difficulties that have arisen. The bank verifies the proper use of the apartment and receives additional guarantees that the client will use the proceeds to pay for the apartment purchased with a mortgage. The borrower, who has the opportunity to live in a separate living space, gets a real chance to keep the apartment through additional income from the rental property, paying the due amount to the bank on time.

What to do if the bank does not allow

To avoid problems with possible difficulties with tenants, banks often impose a ban on renting out real estate. In this case, you will have to resolve the issue in the following ways:

Refuse to rent housing.
Re-sign the new agreement indicating the clause on the bank’s consent to the hire.

The best option would be to agree on the terms of the lease, in particular the duration of the contract with tenants and the impossibility of automatic renewal.

The inclusion of these clauses will protect the interests of the mortgagee and help the borrower regulate the lease relationship.

How to rent out mortgaged housing if the bank has prohibited it?

Even if the mortgage agreement clearly states that renting out housing purchased with mortgage funds is strictly prohibited, there are several ways out of the situation.

First way. First, you need to try to negotiate with the bank manager to revise the previously concluded agreement. For motivation, we can say that without the proceeds from renting out your home, you will not be able to make full mortgage payments on time. The fear that bad debt will arise most often prompts the creditor to compromise with the client.

Second way. You can let people live in mortgaged housing without notifying the bank about it. Most lease agreements between a tenant and a landlord in the Russian Federation are concluded only in words. Even though the law requires a written contract, the parties decide to trust each other and avoid paperwork. In this case, even if the creditor finds out that the mortgaged apartment is actually rented, he will not be able to prove anything, since there is no official document. Therefore, if the mortgage agreement specifies a ban on renting out an apartment to third parties, and an attempt to reach an agreement was unsuccessful, then in fact this can be done only without concluding an official agreement with the tenant.

Does the bank allow renting out a mortgaged apartment?

For some, the mortgage market is an opportunity to acquire their own home; for others, it is a good way to invert funds. In the second case, the client expects that through bank financing he can receive capital that will increase in value, while monthly payments will be paid from the money received from renting out the property.

This type of relationship is, in principle, beneficial for both the lender and the investor, since the bank receives a solvent client, and the borrower receives a reliable way to invest. But such a deal has certain risks.

And they are connected with the fact that the banking company cannot dispose of real estate while the lease agreement is in force. Thus, a bank client can formalize a mortgage agreement and not make monthly payments by completing a rental transaction with an affiliate.

The lease duration may be unlimited, for example, 10 or 30 years. In this case, the borrower can actually continue to use the property, but the bank receives the risk that it will not be able to collect the debt, and in addition, sell the property.

Therefore, many banking organizations indicate in the apartment pledge agreement a ban on renting out real estate. Other companies have a more positive attitude towards such transactions or allow you to rent out an apartment only with the consent of the bank.

What is stated in the mortgage agreement

The law does not prohibit renting out housing purchased with a mortgage. The lender and borrower regulate such relationships independently. The provision may be specified directly in the loan agreement or the general lending rules of a particular bank.

Before registration, we recommend that you find out information directly from the credit manager who will be involved in processing the transaction. You can also independently study the terms of lending, which are publicly available on the websites of banking companies.

For example, at Sberbank, real estate that was purchased on credit cannot be rented out without the consent of the banking company.

If a ban on the transfer of real estate under a lease agreement is not stated anywhere, then such apartments can be rented out without the consent of the bank.

What happens if you violate the terms of the mortgage agreement?

If the banking institution that issued the mortgage loan accidentally or intentionally discovers to the client that he is renting it out, despite the prohibition, then:

If such a violation is discovered only for the first time, then the bank can only issue a verbal reprimand and indicate that such actions are unacceptable.
The lender will record non-compliance with the terms of the mortgage agreement and impose a penalty for deviation from the established rules.
If, after issuing the first warning, the borrower continues to rent out housing, then the banking institution has the right to terminate the mortgage agreement with him unilaterally and demand early payment of the entire debt along with interest. Where the client will take such a sum for a short period of time, he will not worry.
If the borrower does not pay the entire amount along with accrued interest, the bank will file a lawsuit to recover the collateral from him. The landlord and tenant will be evicted, and the property itself will be sold at a bank auction. As a result, the mortgage loan will be considered fully repaid, but this will negatively affect the borrower’s credit history.
Since the fact of renting out housing on an illegal basis becomes known, the client will have problems with the tax authority. He will be given a fine to pay for illegal business activities and tax evasion.

Mortgage real estate delivery

Without obtaining the bank's consent, you can rent out an apartment that is pledged only if the loan agreement does not contain a clause on the possible rental of the pledged property (including with military preferential lending).

If such a clause is still present in the contract, the owner is faced with a choice: obtain the consent of the credit institution and rent out the apartment officially, or use an illegal method.

In order to officially rent out an apartment you must:

Submit a written application to the bank with a detailed description of all the circumstances and reasons for the situation. Consideration of such an application takes 5 working days.

Important! Credit organizations do not always oppose the rental of apartments that are under encumbrance. Often, the fact of leasing is an additional guarantee for the bank of timely repayment of the loan.

The bank's consent can be obtained if:

The property is kept in order.
The necessary amendments will be made to the compulsory mortgage insurance contract.

After receiving the official consent of the bank, it is necessary to prepare additional documents:

Certificate of ownership of the apartment or extract from the Unified State Register of Real Estate.
Certificate of family composition (available from the Housing Office).
Consent to rent out an apartment from all homeowners. The document must be executed by a notary.

The next stage is searching for tenants and concluding a lease agreement. It should detail the responsibilities for paying utilities and the amount of rent, indicate compliance requirements and indicate payment deadlines. An act of acceptance and transfer of the object must be attached to the contract, and the transaction must be notarized.

This is important to know: Can an individual rent out non-residential premises?

In the future, the lessor must annually pay personal income tax in the amount of 13% of the amount received.

In case of a negative decision, the credit institution is not obliged to explain the reasons for the refusal, but the reasons may be :

The borrower's credit history has been damaged. Facts of repeated delays in payments and outstanding fines were revealed.
In the event that the rental agreement is concluded for a period exceeding 1 calendar year.
If a bank audit reveals the fact of renting out housing without obtaining the consent of the lender.

Is it profitable to rent out collateral housing?

On online forums you can often find people discussing whether it is profitable to rent out a home if it is still under a lien from the bank. Let's start with the fact that such a scheme is suitable only for those borrowers who, in addition to a mortgaged apartment/house, also have real estate for living. If the apartment consists of two rooms and there is no separate housing, then you can rent out one room and live in the second. Then you will also be able to control the safety of all property. Three-room premises can be rented room by room.

If a borrower wants to buy an apartment with a mortgage and rent it out immediately, then it is worth choosing liquid options for the purchase. Housing from the secondary real estate market, located near transport interchanges and with good infrastructure, is most in demand. One-room apartments are a priority especially for young couples. The average price tag for housing with modern renovation and built-in appliances ranges from 30 thousand to 50 thousand rubles. in the central regions of the Russian Federation. Housing with two rooms is already more expensive, approximately 50 thousand - 80 thousand rubles.

Reference! Don't forget about the 13% income tax that you will have to pay and utility bills.

Tenants are usually responsible for paying only for the volume of cubic meters of water and kilowatts of electricity, and everything else is paid by the landlord from the money received from the rent.

Note! Many borrowers who have purchased an apartment of three or four rooms rent out the premises for offices and retail outlets, and this turns the property into a commercial type. This will be followed by administrative responsibility.

Renting an apartment with a mortgage: what should you know in advance?

The borrower has every right to rent out the volume of housing; this fact is stipulated in the Russian mortgage law. And yet, in the agreement and in the law there is an important clause - “in the absence of other points, what the mortgage agreement provides for.” By and large, you can enter anything you want into this item. Banks often use this. They use this clause in the requirements - to indicate in the loan agreement everyone who is planned to be registered, about renting out housing to outsiders, and their registration in the apartment. By and large, renting out an apartment for the bank is considered only a positive indicator, because in this way the borrower gains additional income, which means it is more reliable to pay off loans. Based on this, the bank only reduces personal risks.

Many banks give their consent to the registration of unauthorized persons in the borrowed housing property, to rent it out, under a clear condition: all the rights of the borrower will not be infringed in any way. The banking institution itself does not actually take part in the signing of the lease agreement, in the registration of persons in a residential apartment, and is not responsible for tax control and all other activities. This is all managed and controlled by the borrower himself. It is also important that, according to the agreement, the bank can check the condition of the collateral, more precisely, we are talking about a mortgaged apartment. It turns out that bank employees can at any time check the documents for the apartment and what is happening to it now, check who lives in the apartment, what condition it is in. If the apartment is inhabited by dubious individuals who are not registered in the agreement, and the condition of the housing, so to speak, leaves much to be desired, then the borrower himself may have serious problems.

An example of calculating income and expenses when renting out real estate

To clearly show the costs of purchasing a finished apartment with a mortgage for its further rental to third parties, we use the mortgage program from VTB. The minimum interest rate for the use of borrowed funds is 9.7%, the lending period is 30 years. For example, the price of an apartment is 2.5 million rubles, and the down payment is 250 thousand rubles. (i.e. 10%). The monthly payment will be 16,200 rubles.

Renting an apartment from one room will allow you to receive 20 thousand rubles per month. + utility bills. Along with this, there will be an obligation to pay income tax in the amount of 13% and an insurance premium.

The total amount of monthly deductions will then be: 16200 (mandatory contribution) +2106 (tax) + 90 rubles. (addition to the insurance price tag) = 18,396 rubles.

As a result, it turns out that the money received from the tenant will cover the monthly mortgage payment, but only if the borrower also has real estate in which to live and not spend money on rent. If we consider housing located in Moscow or St. Petersburg, the result will be similar. The high cost of interest rates and mortgage payments is offset by the high price tag of rental housing.

Is bank permission required?

Before renting out real estate, you must carefully study the agreement with the bank. Please note the additional terms and conditions and the rights and obligations of the parties. Not all banks provide the opportunity to rent out housing. Let's consider possible options for the bank's conditions regarding this issue, which may be included in the agreement :

The lender allows you to rent out the property and this is clearly stated in the terms of the agreement. In this case, the borrower has nothing to worry about - he can start looking for tenants without coordinating his intentions with the bank.
The contract does not contain information about the possibility of renting . In this case, the client needs to clarify the information with the lender. If he does not mind, he will issue permission.
Renting is possible under certain conditions . The document may stipulate specific conditions under which the borrower can rent out housing: term, terms of the rental agreement, mandatory registration of the transaction, etc.
Surrender is permitted subject to agreement with the bank . The borrower, before moving tenants into his apartment, will need to obtain permission from the bank.
Surrender is prohibited . If this is stated in the contract, then the owner will not be able to do anything - these are the rules.

You need to understand that allowing the rental of a mortgaged apartment involves a certain risk for the lender. After all, during the term of the rental agreement, a completely stranger who has nothing to do with the mortgage transaction will live in the rented housing.

According to some banks, renting an apartment can lead to a decrease in its market value , which can lead to its illiquidity. In Art. 29 of the Federal Law “On Mortgage” states that the borrower must not allow damage to the mortgaged property and a decrease in its value beyond what is considered normal wear and tear. Based on this, the bank may not allow daily rental of an apartment, since this rental option involves rapid wear and tear of the premises.

There are also lenders who not only allow rentals, but also welcome them, since the income received by the owner from tenants significantly increases his solvency.

Risks

We described the advantages of renting out a mortgaged apartment in the previous paragraph - this is, first of all, the benefit in the form of covering the monthly mortgage payment with monthly rent. But there are also disadvantages, and first of all they concern the tenant. Before renting an apartment, it is recommended to immediately ask the owner whether the property is under encumbrance. If it turns out that it is still mortgaged, it is recommended to immediately check whether the lender has given consent to this. If you do not, the lease will be invalid and the tenant will have to vacate immediately.

Is it worth taking out a mortgage if it is ultimately unprofitable?

So, we found out whether it is possible to rent out an apartment with a mortgage (for those who do not understand or have forgotten: it is possible) and how to calculate whether renting is profitable. If it’s profitable, it’s worth taking out a mortgage. What if it’s not profitable? What if expenses exceed income?

Here are some arguments in favor:

the apartment will still remain yours, and you can monetize it in any other way, for example, by remodeling it and selling it at a higher price;
The mortgage payment will remain the same, but the cost of housing and the amount of rent will increase - discount the cash flows and find the break-even point;
after paying off the mortgage, renting out will begin to generate a stable income;
If you are buying an apartment for yourself, but temporarily cannot pay the mortgage in full, then renting it out can be a good way to save money and build your financial safety net.

In the end, you can use a more aggressive method of renting out: rent out housing daily or monthly during sessions / for business travelers, you can divide the premises into two parts and rent out each separately, you can, on the contrary, make an elite renovation and rent out the apartment at exorbitant prices. something for the majors.

Arguments against":

you will have to pay extra for the apartment, i.e. it will not be an asset, but a liability;
you need to incur additional expenses: pay rent and taxes;
after some residents will have to spend money on repairs;
if you take it unofficially, it is fraught with unpleasant consequences;
you may not be able to find tenants, and as a result, the living space will be idle;
tenants may unexpectedly move out, damage the property, or particularly cunning ones may sublet the property or try to cheat in another way (for example, try to sell the apartment by posing as the owners);
the price of real estate, and therefore rent, may fall.

And here’s another interesting article: Dividend aristocrats of Russia: list of stocks

Thus, you can rent out an apartment with a mortgage - both officially and unofficially (and it is better officially). But whether it is profitable or not - you need to consider it. If it is profitable and you receive income or have found a balance point, then you can make renting out an apartment your business. If not, think about it: in some cases, taking out a mortgage and renting it out is still profitable. Good luck, and may the money be with you!