A mortgage is a heavy financial burden. Despite the long term of this loan, the monthly payments are quite high.
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And it is quite natural that borrowers are looking for funds to replenish their budget in all available ways. Including renting out purchased housing.
And some even initially plan to buy an apartment in order to use it as a source of income.
But how permissible is such use? After all, according to the mortgage agreement, until the debt to the bank is fully repaid, the apartment is pledged to him.
What does the law say?
And the law proceeds from the fact that the borrower owns the apartment. This means that he has the right to own, use and dispose of it. Renting out property is included in these powers, as is pledging property to a bank.
But among the provisions of Article 209 of the Civil Code of the Russian Federation, there is also a limitation, a limit of authority. These are the interests of third parties, which cannot be violated. In the case of a mortgage, this third party is the bank.
Relations with him are regulated not only by the Civil Code, but also by other regulations. The main one is the Federal Law “On Mortgage” No. 102.
Article 29 of Federal Law No. 102 states that the borrower has the right:
- use the apartment for its intended purpose, that is, live in it;
- extract fruits and income from it.
That is, from the point of view of the law, using an apartment to generate income by renting it out is quite acceptable.
At the same time, the mortgagor is obliged to take measures to protect the housing pledged from destruction and damage. The list of possible causes of damage indicates the encroachments of third parties.
Bank conditions
Banks may include conditions in the agreement establishing the need to notify them, as mortgagees, about the use of the apartment for profit. Or even outright bans. There are two reasons for this.
The first is related to the bank’s concerns:
- lose the collateral;
- As a result, obtain property that has a lower value than when placed under collateral.
It's no secret that many tenants do not treat their rental housing in the best way. And landlords are in no hurry to repair the damage caused, as this will reduce their rental income.
As a result, the apartment loses its marketable appearance and its market value falls.
In the most extreme case, due to the fault of the tenants, the apartment may be destroyed, for example, burned. However, this option is more profitable for the bank, since it is covered by insurance, which the owner is obliged to provide under the mortgage agreement.
But if payments are late, it will be difficult to sell real estate that has significantly lost in value, which means there is a chance that you will not receive the amount that the borrower owes for it.
The second reason forcing banks to include conditions prohibiting the rental of mortgaged apartments is considerations of their own benefit.
Mortgage loans are provided to citizens to meet their personal needs. And using an apartment to generate income is a commercial activity.
For representatives of small businesses, loans are provided on other, more stringent conditions:
- with shorter deadlines;
- with high interest rates.
It is not surprising that banks want to know whether they should offer the borrower more favorable conditions.
In addition to banks, insurance companies are also interested in the purpose of using the apartment. Different tariffs apply for residential and commercial properties. Because the risks are significantly different. Insurers do not want to pay for the consequences of other people's mistakes.
Permitted rental
Is it possible to rent out an apartment with a mortgage from Sberbank? In certain situations, the Sberbank Credit Committee may allow tenants to move in. If a client has lost his job or lost his source of income, he can, by agreement with the bank, rent out his home.
Sberbank's main goal is for the counterparty to repay the mortgage on time. The credit institution has no desire to incur additional costs associated with litigation and the sale of collateralized housing. Bankers are not always able to sell collateral at a favorable price.
All these factors lead to Sberbank approving rental relations. The borrower receives an additional source of funds. The credit inspector will ensure that the landlord correctly draws up a rental agreement for the premises, opens an account and pays personal income tax. “Transparency” of transactions is required so that the borrower does not have problems with government agencies and can report on the profit received.
Some management companies offer intermediary services for renting apartments encumbered with a mortgage. The company takes a commission from the landlord and frees the homeowner from worries associated with selecting tenants and collecting funds.
Is it possible to rent out an apartment with a mortgage?
The law gives a clear answer as to whether it is possible to rent out an apartment with a mortgage. Yes, you can. And the bank cannot prohibit the borrower from doing this. The inclusion of such a clause in the contract is void.
After all, housing is used for its intended purpose - for living. Just not the borrower himself, but his tenant.
But there is a clause in Article 29 of Federal Law No. 1020 of the Mortgage Law that states that additional conditions may be contained in the mortgage agreement. And some banks use this loophole.
Others do not pay attention to the borrower’s relationship with the tenants and the tax service as long as he regularly makes monthly payments.
For rent
In order to rent out housing to the same citizens, there is no need to obtain the status of an individual entrepreneur or legal entity. That is, it will be very difficult for banks to prove that this is a commercial activity.
Relations between the apartment owner and his tenants, as well as with the tax authorities, do not concern the bank.
Exactly as long as payments are received and the apartment is in good condition.
A dollar mortgage is beneficial only to those who receive salaries in the same currency. Is it possible to defer mortgage payments upon the birth of a child at Sberbank? See here.
For military mortgage
As for military personnel and the housing they purchase under the military mortgage program, the situation is very ambiguous:
- On the one hand, the owner can use his property freely, including entering into a commercial lease agreement.
- But on the other hand, any commercial activity for military personnel is expressly prohibited.
Again, it is highly controversial whether the rental of housing is a commercial activity if it occurs from time to time and without concluding a contract?
One of the signs of entrepreneurial activity is systematicity (Article 23 of the Civil Code of the Russian Federation). There is no clear answer.
There is one more point. In addition to the bank, the state is also the mortgagee of the serviceman’s apartment.
If the bank turns a blind eye to the use of an apartment to generate income, then one can hardly expect such loyalty from the state.
In Sberbank
Among the conditions of Sberbank contained in the mortgage lending agreement, there is a ban on renting out a mortgaged apartment without the bank’s consent.
That is, according to the rules, you need to contact the bank with a corresponding application, the bank will consider it and make a decision. As a rule, it is positive.
All risks are insured, so the bank’s rights are not violated.
In practice, few borrowers pay attention to this clause of the contract. Especially when it comes to informal relationships that are not formalized in any way.
Neither the bank nor the tax office can track such “gentleman’s agreements”. But there is still a risk.
Here is a sample mortgage agreement at Sberbank.
Is it possible to rent out housing without approval from the bank?
Most lenders require clients taking out a buy-to-let mortgage to obtain prior approval for this action.
However, in Russia there are banks that allow the possibility of concluding a lease agreement without their own intervention.
IMPORTANT ! If the contract does not indicate a ban on renting real estate and there is no information about the need to coordinate this clause with the bank, the home owner has the right to take out a mortgage on the apartment and rent it out without prior permission.
Is it profitable?
Renting a home is a very popular service today. In the absence of a civilized market, the cost of rented apartments is very high. Income from such activities helps pay off mortgage payments.
It is not surprising that many borrowers prefer to take advantage of this opportunity without thinking about whether it is possible to rent out an apartment taken on a mortgage.
But with all the advantages, there are also several very significant disadvantages to this method of loan repayment:
- First, there is an increased risk of damage or destruction to the home. The bank will receive its funds from the insurance payment. But whether any of it will remain for the borrower is a big question.
- Secondly, after the end of repayment of the debt, the apartment will have to be renovated. Depending on the attitude of temporary residents towards it, such repairs can be very expensive.
- Thirdly, banks still do not welcome such initiative from borrowers. The reasons are stated above. And if they deem it necessary, they will record a violation of the terms of the contract.
The rating of banks for mortgage lending will help you obtain a home loan on the most favorable terms. What is the state fee for registering a mortgage? Read here.
Are you interested in a mortgage from VTB 24 for new buildings? Detailed information in this article.
What is better to choose a resale or new building for rent?
Although it is believed that housing in new buildings is rented out faster, the difference here is not that significant. The head of the company, Irene, and our editor, Maria Yuryevna, believes that the age of the house does not play a big role. Buildings built during the Brezhnev period of the 1980s are in demand by tenants no worse than those built less than 10 years ago.
The price of housing in a new building, if purchased during the construction period, will be less than a finished apartment on the resale market. But in order to rent out this housing, you need to wait several months, and this threatens with loss of income and payment of monthly loan payments from your own funds.
If an apartment building is just starting to be built, it will take about two years before the housing is put into operation. And although the cost of housing will be approximately 30% lower than in a finished house, you could earn about a million rubles from payments from tenants during this time.
The ideal option to buy an apartment with a mortgage for rent is a new building with finished finishing. Such a purchase allows you to save up to 10% on repairs, says our editor, Maria Yuryevna. A neutral decorating style from a contractor is a great option for homeowners.
When purchasing a home from the previous owners, it will have to be repaired in any case. It is rare to find an apartment in perfect condition after its occupants; usually premises that have not been renovated for several years are put up for sale. Renting such housing for a good price will be problematic.
Consequences of breach of contract
The first time a borrower is found to be violating an agreement with the bank, they may be told that such behavior is inadmissible and given a warning.
If violations continue, the bank has the right to demand early repayment of the debt. Fully, with interest. Where the borrower will find funds for this is not the bank’s concern.
If the client is unable to pay the debt, the bank will turn its attention to the collateral. The borrower and his tenants will be evicted and the apartment sold.
The mortgage will be closed in this way, but the credit history will be damaged.
What kind of housing should you pay attention to?
When choosing a real estate mortgage, you should buy and rent out the purchased apartment, but you need to pay attention to several points. When choosing real estate in a new building you must:
- Find out as much as possible about the developer, the company’s reputation, and the quality of the housing being rented.
- Analyze the technology used to build the house (brick, monolithic frame, etc.).
- Get information on what piece of land the building is located on, whether the rock is stable, whether there are nearby bodies of water, groundwater, or permafrost in the northern regions.
- Find out whether it was a long-term construction project.
- It is best to choose housing in a house that was commissioned 5-6 years ago, because by this time all structures are shrinking and there is no need to make major repairs.
If the option of secondary housing is being considered, then:
- Do not purchase an apartment in a building that was built more than 50 years ago, because... such buildings are often infested with fungus and have other disadvantages.
- You need to carefully inspect the ceilings, find out when the last major repair was carried out.
- You should not choose an apartment in a building where there is a grocery store or supermarket, because in this case there are rodents and insects in the house.
- When choosing panel housing, you need to take into account the fact that the coldest apartments in it are on the first floors and corner ones. If you like the apartment, then it is best to wait until the cold weather to make a purchase in order to get a complete picture of the property you are purchasing.
- In a panel house, you need to check the level of the walls: they can be crooked.
- Apartments in a brick building are equally warm on all floors.
Consequences of renting without agreement with the bank
Despite the fact that the risk of consequences of renting an apartment without the bank’s permission is quite insignificant, it is better for the borrower to protect himself from any possible troubles. Why can’t you rent out an apartment with a mortgage without approval from the bank? If the loan agreement strictly stipulates a prohibition on renting, the violator may face certain consequences, which include:
- imposition of a fine;
- increase in loan interest rate;
- the bank's requirement for early repayment of the debt;
- forced repossession and sale of mortgaged real estate.
To avoid all of the problems listed above, a borrower who rented out an apartment without the approval of the bank must responsibly comply with all other requirements of the bank and make all loan payments on time so as not to incur an audit by the financial institution.
