Buying a house but not moving into it? Is that OK?

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rgs92
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Buying a house but not moving into it? Is that OK?

Post by rgs92 »

Let's say I closed on a house meant to be a primary residence but decided not to move into it and maybe (or maybe not) rent it out.
Would there be a problem with the mortgage?
Thank you.
targetconfusion
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Re: Buying a house but not moving into it? Is that OK?

Post by targetconfusion »

It’s common for a lender to require an affidavit of occupancy before lending for a primary residence. If yours does not, there’s likely no problem.
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rgs92
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Re: Buying a house but not moving into it? Is that OK?

Post by rgs92 »

So you are saying the lender could revoke the loan after it is place if you do not move in?
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Re: Buying a house but not moving into it? Is that OK?

Post by Dottie57 »

Having an unoccupied house may cause problems insuring the problem.
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Re: Buying a house but not moving into it? Is that OK?

Post by Firemenot »

My understanding from having discussed this issue over previously with a very honest mortgage broker friend of mine is that if you truly had the intent to occupy it as your primary residence, but then if after closing that changes for some reason, you are technically fine. That being said, it would be good to have evidence that backs you up. Unless rates skyrocket or something I can’t imaging a bank would even look into.
59Gibson
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Re: Buying a house but not moving into it? Is that OK?

Post by 59Gibson »

It could be classified as mortg fraud. They do check, maybe not always but it's happened to me 2x. You signed docs stating this will be your primary for at least 1yr. There are extenuating circumstances but they'd need to be rock solid and documented.
chw
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Re: Buying a house but not moving into it? Is that OK?

Post by chw »

Why would you do so unless you never intended to move in? Buying a home is a huge decision, and one should know if they intend to live in the home upon passing papers. I can see if there was an unforeseen job change down the road that required relocation, but otherwise moving in should be known.

Just about every bank will have you sign an occupancy document (or it will be a clause of the mortgage). You could be perceived as committing bank fraud if you never move in, which could bring its own problems (different than moving several years later). Such fraud is sometimes investigated further for prosecution if it is deemed systemic (there is a pattern of multiple cases of it), or if the amount of the loan risk profile could expose the bank to a significant loss- which could happen if the discover the misdeed before the loan is sold.
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Re: Buying a house but not moving into it? Is that OK?

Post by JoeRetire »

rgs92 wrote: Thu Apr 22, 2021 9:30 am Let's say I closed on a house meant to be a primary residence but decided not to move into it and maybe (or maybe not) rent it out.
Would there be a problem with the mortgage?
What are you trying to do in real life here (rather than what you will tell the lender)? Flip the house?
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Re: Buying a house but not moving into it? Is that OK?

Post by Jack FFR1846 »

The bank can call in the loan. Also, the insurance company will reject any claims you make as you fraudulently specified the homeowners insurance as owner occupied. So if the house burns down, you owe the entire mortgage amount and insurance isn't paying a dime.

(I have asked about this to both bank and insurance company when I was leaving for grad school and renting out my house for 2 years)
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Re: Buying a house but not moving into it? Is that OK?

Post by dziuniek »

There's qualifying events that could let you not live in the house for 1 year* minimum that I believe is required.
I think a new job that's a certain amount of miles away, etc. Look it up - probably a good biggerpockets question.
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Re: Buying a house but not moving into it? Is that OK?

Post by badger42 »

For insurance you should be able to get a non-occupied policy or rider with no problems, it will likely cost extra (on the order of a few hundred $$ a year is likely). Just ask your agent. This is also the sort of thing where you really want to be working with an independent agent who you can ask "what if" type questions to, not direct with an insurance company.
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Re: Buying a house but not moving into it? Is that OK?

Post by jfn111 »

Firemenot wrote: Thu Apr 22, 2021 11:10 am My understanding from having discussed this issue over previously with a very honest mortgage broker friend of mine is that if you truly had the intent to occupy it as your primary residence, but then if after closing that changes for some reason, you are technically fine. That being said, it would be good to have evidence that backs you up. Unless rates skyrocket or something I can’t imaging a bank would even look into.
That is the correct answer. Banks don't want you using a 3-5% down loan for a rental property but life happens. A sudden job transfer or a sudden disability that made the house impractical. To not be fraud you had to have the honest intention of moving in.
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Re: Buying a house but not moving into it? Is that OK?

Post by oldfatguy »

rgs92 wrote: Thu Apr 22, 2021 9:39 am So you are saying the lender could revoke the loan after it is place if you do not move in?
I don't think revoke is the right term, but they can call for immediate repayment of the loan.

Every mortgage and refinance loan I've ever signed had this condition, that the property would be my primary residence for at least one year.
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Re: Buying a house but not moving into it? Is that OK?

Post by hand »

Contractual requirements (and penalties) are spelled out in your specific mortgage agreement, with likely penalty of the mortgage being called, and you being blackballed by the lender in question.

In practice, likelihood of anyone looking close enough to notice you have breeched the contract is probably related to 1) whether you pay on time all of the time, and 2) how much of an advantage you are getting with the loan vs. current landlord rates (50 basis points on a couple hundred grand likely isn't worth the time or effort, but if rates spike to 10%, lenders might be much more motivated to terminate as many 3% loans as possible).

Personally, If my intentions had been pure, I wouldn't be overly worried if my life situation changed and I needed to rent, but I would absolutely make sure the insurance was proper - this feels like the biggest risk.
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Re: Buying a house but not moving into it? Is that OK?

Post by SimonJester »

Biggest issue I think is insurance, you absolutely need to let your insurance know its not occupied.
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Re: Buying a house but not moving into it? Is that OK?

Post by Slacker »

If you don't have extenuating circumstances, you should be cautious.

You received a much more favorable loan than a standard commercial loan for rental properties.

You can get your loan with 3.5% or more down and maybe a sub 3% interest rate.
Someone getting a loan strictly for the purpose of having a rental property has to usually put down 35%, show expected rents vs cost, and will likely have to pay 4% or higher rates.

Insurance paperwork gets sent to the mortgage servicers.
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Re: Buying a house but not moving into it? Is that OK?

Post by barnaclebob »

rgs92 wrote: Thu Apr 22, 2021 9:39 am So you are saying the lender could revoke the loan after it is place if you do not move in?
If they can prove you never intended to move in, then yes they can call the loan.

My realtor or the closing agent said that if there were extenuating circumstances that took place between the loan being funded and moving in such as job loss/relocation, family dealth/illness/issues etc then that statement about primary residence wouldn't apply since you at the moment of signing did intend to move in. I'm not sure if you can just "change your mind" or what the banks actual burden of proof is.
Last edited by barnaclebob on Fri Apr 23, 2021 10:10 am, edited 3 times in total.
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Re: Buying a house but not moving into it? Is that OK?

Post by Nate79 »

This is regularly audited by the way. You should follow your contractual obligations.
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Re: Buying a house but not moving into it? Is that OK?

Post by MortgageOnBlack »

Mortgage Fraud. In my hometown (CO), the fact that there are many natives trying to get a primary residence, but are being outbid by by transpants with more liquid assets (some of whom have more advantages in life, I'm sure), it is only right that you should be paying 2nd home interest and Investment property interest rates on your loan.
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Re: Buying a house but not moving into it? Is that OK?

Post by mmmodem »

rgs92 wrote: Thu Apr 22, 2021 9:39 am So you are saying the lender could revoke the loan after it is place if you do not move in?
Unlikely. They may not offer you the loan in the first place if they have sufficient reasons to believe that you would not be occupying it as a primary residence. This happened to a coworker and they would not accept an affidavit. He actually had no intention of occupying the home and they caught him. He simply went with another bank that had no such provisions and rented it out as he had planned.
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Re: Buying a house but not moving into it? Is that OK?

Post by 59Gibson »

Most home owners insurance policies will allow a certain amount of time for unoccupied status 60-90 days. If it goes beyond that you'll need to get a "Vacant" policy and they're much more expensive with limited coverage.
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Re: Buying a house but not moving into it? Is that OK?

Post by Ilikesparklers »

jfn111 wrote: Fri Apr 23, 2021 7:07 am
Firemenot wrote: Thu Apr 22, 2021 11:10 am My understanding from having discussed this issue over previously with a very honest mortgage broker friend of mine is that if you truly had the intent to occupy it as your primary residence, but then if after closing that changes for some reason, you are technically fine. That being said, it would be good to have evidence that backs you up. Unless rates skyrocket or something I can’t imaging a bank would even look into.
That is the correct answer. Banks don't want you using a 3-5% down loan for a rental property but life happens. A sudden job transfer or a sudden disability that made the house impractical. To not be fraud you had to have the honest intention of moving in.
Agree. My good friend is heavily invested in real estate between multi-units and SFH's. We recently discussed this issue regarding applying for a mortgage as a primary residence and living in the house less than a year. He has taken out mortgages for 3 primary residences in good faith, with the intention of living in them. Due to life and other opportunities, he's never lived in any of them longer than 6-9 months officially. Regardless, no one has checked on this/come after him. However, he is currently applying for a refi on one of those properties. His broker said it's going to be an uphill battle convincing the bank that this is actually going to be his primary residence in order to get a favorable refi rate. He's still confident he'll find a bank who'll do it. He is in the process of moving back into the property he's trying to refi, so he fully intends to live in it. I get the feeling this sort of thing happens a lot.
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Re: Buying a house but not moving into it? Is that OK?

Post by London »

Nate79 wrote: Fri Apr 23, 2021 10:06 am This is regularly audited by the way. You should follow your contractual obligations.
I have never seen this audited. The banks want to sell the note in most cases. Once the note is sold, they will only care about getting paid monthly.
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Re: Buying a house but not moving into it? Is that OK?

Post by Watty »

I know little about them but lots of people get loans for second vacation homes so you could research it that way.

I do not know how aggressively they check on it but if they wanted to it would be very easy for a lenders computer to automatically check to see if the home is actually owner occupied because they have electronic access to;

1) Your home insurance policy gets reported to the lender. If you have a rider for using it as a rental or for leaving it vacant then they will know that you are not living there.

2) Many areas have a property tax break for owner occupied housing. Even if you do not have an escrow account that is a public record. Not having that would flag you as not living in the house.
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Re: Buying a house but not moving into it? Is that OK?

Post by hand »

London wrote: Fri Apr 23, 2021 12:44 pm
Nate79 wrote: Fri Apr 23, 2021 10:06 am This is regularly audited by the way. You should follow your contractual obligations.
I have never seen this audited. The banks want to sell the note in most cases. Once the note is sold, they will only care about getting paid monthly.
Unless there is someone with specific experience to the contrary, my mental model of this is much closer to what was shown in "The Big Short" ... Brokers write as many mortgages as far into the grey area as they can get away with and then "pass the trash" as quickly as possible where the loans exist as tiny line items in a giant database that only get scrutiny if payments stop and losses exceed some predetermined threshold.

Still not right to take advantage if the intention from the start is to rent, but risk to those with pure intentions, but changing circumstances on a single property seems low.
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Re: Buying a house but not moving into it? Is that OK?

Post by FIREchief »

59Gibson wrote: Fri Apr 23, 2021 10:52 am Most home owners insurance policies will allow a certain amount of time for unoccupied status 60-90 days. If it goes beyond that you'll need to get a "Vacant" policy and they're much more expensive with limited coverage.
When we moved out of our house prior to listing for sale, we had 60 days before requiring a vacant house policy (about twice the cost of a normal policy). If we had not obtained the vacant house policy, our old policy would remain in effect but no longer cover theft and vandalism.
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Re: Buying a house but not moving into it? Is that OK?

Post by ChicagoBear7 »

hand wrote: Fri Apr 23, 2021 1:36 pm
London wrote: Fri Apr 23, 2021 12:44 pm
Nate79 wrote: Fri Apr 23, 2021 10:06 am This is regularly audited by the way. You should follow your contractual obligations.
I have never seen this audited. The banks want to sell the note in most cases. Once the note is sold, they will only care about getting paid monthly.
Unless there is someone with specific experience to the contrary, my mental model of this is much closer to what was shown in "The Big Short" ... Brokers write as many mortgages as far into the grey area as they can get away with and then "pass the trash" as quickly as possible where the loans exist as tiny line items in a giant database that only get scrutiny if payments stop and losses exceed some predetermined threshold.

Still not right to take advantage if the intention from the start is to rent, but risk to those with pure intentions, but changing circumstances on a single property seems low.
Hate to burst everyone's bubble, but there is a whole industry of mortgage quality control audit firms out there. The reason is contained in the Freddie and Fannie guidelines. Here is from Fannie's:

Verification of Owner-Occupancy
For all loans secured by a principal residence that are selected via the random selection process (and for loans selected through the discretionary selection process, as applicable) the post-closing QC review must include verification of owner-occupancy. The lender must review the property insurance policy and other documentation in the file (for example, appraisal, income tax returns or transcripts) to confirm that there are no indicators that the property is not the borrower’s principal residence.

https://selling-guide.fanniemae.com/Sel ... 6-2020.htm

All agency loans have some level of QC review and audit. That doesn't mean every loan is fully audited for owner occupancy, but a certain percentage are, and those with red flags are definitely reviewed. Be careful out there!
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Re: Buying a house but not moving into it? Is that OK?

Post by mrspock »

rgs92 wrote: Thu Apr 22, 2021 9:30 am Let's say I closed on a house meant to be a primary residence but decided not to move into it and maybe (or maybe not) rent it out.
Would there be a problem with the mortgage?
Thank you.
I did this, even refinanced afterwards. The big thing is your intent, if you go into the mortgage knowing you aren’t going to live there, but will leave it empty, then you need declare it as a secondary residence. This does not mean you can rent it though in many (most?) mortgage contracts, typically you can’t do they after at least a year unless you declare up front your intention to rent and take a higher interest rate.

In my case I bought, but couldn’t bring myself to sell the other house, so I just use the new place as an occasional crash pad and investment (it has appreciated a lot). I declared it as a secondary when I refinanced, the first mortgage it was declared as primary on the mortgage since that was my intent at the time.

My advice is be 100% honest with everyone (mortgage company/underwriter, insurance, HOA etc), if you lie, you just give them all an excuse/opening to void your mortgage or worse — insurance, should you ever need to make a claim. You really only hurt yourself by lying or misleading.
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Re: Buying a house but not moving into it? Is that OK?

Post by hand »

ChicagoBear7 wrote: Fri Apr 23, 2021 3:03 pm
Hate to burst everyone's bubble, but there is a whole industry of mortgage quality control audit firms out there. The reason is contained in the Freddie and Fannie guidelines. Here is from Fannie's:

Verification of Owner-Occupancy
For all loans secured by a principal residence that are selected via the random selection process (and for loans selected through the discretionary selection process, as applicable) the post-closing QC review must include verification of owner-occupancy. The lender must review the property insurance policy and other documentation in the file (for example, appraisal, income tax returns or transcripts) to confirm that there are no indicators that the property is not the borrower’s principal residence.

https://selling-guide.fanniemae.com/Sel ... 6-2020.htm

All agency loans have some level of QC review and audit. That doesn't mean every loan is fully audited for owner occupancy, but a certain percentage are, and those with red flags are definitely reviewed. Be careful out there!
Thanks for the link! Poking around, it looks like QC sample rates are likely around 4% :

https://cogentqc.com/uncategorized/meet ... -standard/

"Thus, a lender originating an average of 1,000 loans per month might estimate a 6-month population of 6,000 loans. Assuming an expected incidence rate (or defect rate) of 5% and a precision target of 2%, the resulting Sample Size becomes 242. Dividing this by 6 months yields a monthly sample size of 40 loans."

What is not clear is what occurs when a failure is identified - is the failure remediated, or is the QC failure simply used to make a judgement of the body of mortgages as a whole?
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Re: Buying a house but not moving into it? Is that OK?

Post by Northern Flicker »

Slacker wrote: Fri Apr 23, 2021 8:48 am If you don't have extenuating circumstances, you should be cautious.

You received a much more favorable loan than a standard commercial loan for rental properties.

You can get your loan with 3.5% or more down and maybe a sub 3% interest rate.
Someone getting a loan strictly for the purpose of having a rental property has to usually put down 35%, show expected rents vs cost, and will likely have to pay 4% or higher rates.
You don't need a commercial loan with up to 4 mortgages on single-family or duplex properties. There are residential investor loans that conform to FNMA rules. The requirements and loan configurations change over time. I'm not familiar with the current configuration, and it just was tightened up 4/1:

https://www.housingwire.com/articles/fa ... roperties/

Your lender or mortgage broker can provide the requirements and limitations.
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Re: Buying a house but not moving into it? Is that OK?

Post by FIREchief »

ChicagoBear7 wrote: Fri Apr 23, 2021 3:03 pm Hate to burst everyone's bubble, but there is a whole industry of mortgage quality control audit firms out there.
Everyone's bubble?? :confused
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Re: Buying a house but not moving into it? Is that OK?

Post by Slacker »

Northern Flicker wrote: Sun Apr 25, 2021 5:50 pm
Slacker wrote: Fri Apr 23, 2021 8:48 am If you don't have extenuating circumstances, you should be cautious.

You received a much more favorable loan than a standard commercial loan for rental properties.

You can get your loan with 3.5% or more down and maybe a sub 3% interest rate.
Someone getting a loan strictly for the purpose of having a rental property has to usually put down 35%, show expected rents vs cost, and will likely have to pay 4% or higher rates.
You don't need a commercial loan with up to 4 mortgages on single-family or duplex properties. There are residential investor loans that conform to FNMA rules. The requirements and loan configurations change over time. I'm not familiar with the current configuration, and it just was tightened up 4/1:

https://www.housingwire.com/articles/fa ... roperties/

Your lender or mortgage broker can provide the requirements and limitations.
The trick is to find a bank that will actually give you a conventional home loan on a property that you told them from day one you intended as an investment rental property. I never had any luck with that part even if "the rules" allow it.
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Re: Buying a house but not moving into it? Is that OK?

Post by LittleMaggieMae »

Let's say I closed on a house meant to be a primary residence but decided not to move into it and maybe (or maybe not) rent it out.
Would there be a problem with the mortgage?
If you have closed on the house and now won't be moving there because of "life happening". I suspect the mortgage lender isn't going to notice especially if you keep making your mortgage payments as agreed. Your insurance is another story - you purchased a "primary home owner" policy which went into effect at the closing. If the house will be empty for a long period or you will be renting it out - you will need to update the insurance to protect the house. You may need a "2nd home" policy or a "landlord" type policy if you will rent the house. I would guess the lender won't look too hard at the insurance policy when you change the policy number they have on file for your escrow or when the "computer" processes your proof of insurance if you don't have escrow.

I don't believe you are required to tell the lender you aren't using the house as your primary home - once you've closed on the house - if your circumstances change.

If you are thinking this is a great way (lower interest/lower cost mortgage) to buy a rental property that would be a no no. You might be able to get away with it once - but it is mortgage fraud. When you go to buy your next "primary home" - when you apply for a mortgage you will most likely need to provide all the info on the other homes you own (as in rental income) and such - via your income tax statements. Which may raise a flag for future lenders - about why you are buying a "primary home" - and not a 2nd home or an "investment property".
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Re: Buying a house but not moving into it? Is that OK?

Post by IMO »

ChicagoBear7 wrote: Fri Apr 23, 2021 3:03 pm
hand wrote: Fri Apr 23, 2021 1:36 pm
London wrote: Fri Apr 23, 2021 12:44 pm
Nate79 wrote: Fri Apr 23, 2021 10:06 am This is regularly audited by the way. You should follow your contractual obligations.
I have never seen this audited. The banks want to sell the note in most cases. Once the note is sold, they will only care about getting paid monthly.
Unless there is someone with specific experience to the contrary, my mental model of this is much closer to what was shown in "The Big Short" ... Brokers write as many mortgages as far into the grey area as they can get away with and then "pass the trash" as quickly as possible where the loans exist as tiny line items in a giant database that only get scrutiny if payments stop and losses exceed some predetermined threshold.

Still not right to take advantage if the intention from the start is to rent, but risk to those with pure intentions, but changing circumstances on a single property seems low.
Hate to burst everyone's bubble, but there is a whole industry of mortgage quality control audit firms out there. The reason is contained in the Freddie and Fannie guidelines. Here is from Fannie's:

Verification of Owner-Occupancy
For all loans secured by a principal residence that are selected via the random selection process (and for loans selected through the discretionary selection process, as applicable) the post-closing QC review must include verification of owner-occupancy. The lender must review the property insurance policy and other documentation in the file (for example, appraisal, income tax returns or transcripts) to confirm that there are no indicators that the property is not the borrower’s principal residence.

https://selling-guide.fanniemae.com/Sel ... 6-2020.htm

All agency loans have some level of QC review and audit. That doesn't mean every loan is fully audited for owner occupancy, but a certain percentage are, and those with red flags are definitely reviewed. Be careful out there!
When we've taken out a mortgage(s) on a property that was an investment (rental) property we have to take out a loan as an investment property which is more expensive and can require additional down payment. For one, even though we intended it to become our primary residence in about 2 years that was not relevant. We also just signed a mortgage on a 2nd home, and it required an addendum that the home was going to be a 2nd home for a 1 yr period. I believe most primary home mortgages do allow one to convert the property to a rental after at least 1 year but honestly I don't know if that's written in a mortgage contract? Ironically just signed a mortgage also on our primary home, and I'll have to check to see if it has the specific wording on the 1 year time frame as our 2nd home did. I know we did sign something that stated this was our primary home.

If people get away with things that are not legitimate or legal doesn't make it legitimate or legal. Kinda of like saying, I just request cash from our tenant and I don't report the income and that it must be okay since it never got audited or questioned....
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Re: Buying a house but not moving into it? Is that OK?

Post by Northern Flicker »

Slacker wrote: Sun Apr 25, 2021 8:25 pm
Northern Flicker wrote: Sun Apr 25, 2021 5:50 pm
Slacker wrote: Fri Apr 23, 2021 8:48 am If you don't have extenuating circumstances, you should be cautious.

You received a much more favorable loan than a standard commercial loan for rental properties.

You can get your loan with 3.5% or more down and maybe a sub 3% interest rate.
Someone getting a loan strictly for the purpose of having a rental property has to usually put down 35%, show expected rents vs cost, and will likely have to pay 4% or higher rates.
You don't need a commercial loan with up to 4 mortgages on single-family or duplex properties. There are residential investor loans that conform to FNMA rules. The requirements and loan configurations change over time. I'm not familiar with the current configuration, and it just was tightened up 4/1:

https://www.housingwire.com/articles/fa ... roperties/

Your lender or mortgage broker can provide the requirements and limitations.
The trick is to find a bank that will actually give you a conventional home loan on a property that you told them from day one you intended as an investment rental property. I never had any luck with that part even if "the rules" allow it.
Maybe you need to work with a mortgage broker instead of a bank. Conventional conforming residential investor loans are routine.
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Re: Buying a house but not moving into it? Is that OK?

Post by Cyclone »

I've worked as a mortgage quality control analyst. This is something that is most definitely checked, but as has been pointed out only a sample of closed loans are reviewed. What happens if you get caught? I don't know, but technically it is mortgage fraud. I never actually saw it happen (or maybe I was just a poor mortgage quality control analyst, but that doesn't seem possible).
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Re: Buying a house but not moving into it? Is that OK?

Post by LadyGeek »

Discussions of dishonest behavior or bypassing the law is totally unacceptable. The question has been answered - it is mortgage fraud.

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