Why is my lender saying im supposed to occupy for 2 yrs

Rental Property Investor · Phoenix, AZ · Member since 2017 · 41 posts · 7 votes

Hey bp! I talked to the lender who I got me my 5% down Owner occupy conventional loan and he is under the impression that I need to occupy the home for 2years before I can rent the property. After our conversation I looked over all of my loan docs a few times and couldn't find anything stating I have to live in the property for 2years. I did find the section in my docs that states I would need to occupy for 1year. So is it 1 yr or 2 yrs? What do you think is going on here?

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Michele B.

Vandalia, MI · Member since 2018 · 569 posts · 264 votes

Two years occupancy is about selling and not having to pay capital gains taxes. Two different things entirely.

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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
8y
By lender did you use a mortgage broker? Is that who you are talking to? The mortgage broker is generally not the lender. They just put the loan together. You should have signed mortgage docs at closing. Those are the terms you agreed to and if you have signed any other docs since that time.
You might be talking to the servicer of the loan and they might be clueless about what you signed.
No legal advice given.
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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
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If it's FHA it's one year.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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never heard of 2 year only 1 with FHA....
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Cisco Hood
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Rental Property Investor · Phoenix, AZ · Member since 2017 · 41 posts · 7 votes
8y
@Joel Owens no we didn't use a mortgage broker. We went straight to a mortgage lender to get the loan.
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Cisco Hood
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Rental Property Investor · Phoenix, AZ · Member since 2017 · 41 posts · 7 votes
8y
@JD Martin we don't have a FHA we have a conventional loan
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Cisco Hood
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Rental Property Investor · Phoenix, AZ · Member since 2017 · 41 posts · 7 votes
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@Jay Hinrichs we have a conventional loan
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Omar Khan
Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
8y
@Cisco Hood Have an attorney read all your documents (expensive, so make sure it's worth it) and proceed from there.
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Cisco Hood
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Rental Property Investor · Phoenix, AZ · Member since 2017 · 41 posts · 7 votes
8y
@Omar Khan to be 100% safe that's might be the way for me to go. I don't want to break any laws if we move out to soon.
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Jackson Pontsler
Flipper/Rehabber · Salt Lake City, UT · Member since 2016 · 211 posts · 174 votes
8y
@Cisco Hood 9 times out of 10 if you live there for a bit and then move out and start renting it out the banks won't care if you keep paying the bill. This isn't a hard rule but most banks know these is happening in the background and can't spend the time to go and investigate all of their mortgage loans (espically if they are sold to a big loan collector)
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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
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It’s one year....conventional or fha.... period.
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Cisco Hood
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Rental Property Investor · Phoenix, AZ · Member since 2017 · 41 posts · 7 votes
8y
@Jackson Pontsler yeah I wanted to take that approach and move out after 1year instead of 2years I felt I would be okay since my loan paperwork I signed says 1year, I just got scared when I talked to the lender the other day and he said it was 2. We closed on our loan about three months ago and yes the loan has already been sold off to a different holder.
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Jackson Pontsler
Flipper/Rehabber · Salt Lake City, UT · Member since 2016 · 211 posts · 174 votes
8y
@Cisco Hood I bought a duplex that was suppose to stay under my wife and my name. We went to purchase a second one using the same lender. When we talked with that lender (outside of work) he said just quick claim the first one into your LLC. Sure they can then call the loan but more than likely they don't care unless you are paying consistently. I wish you the best and yes the loan papers are important. The terms there always favor the bank but unless they need to call those terms to bear the bank is often more lienient.
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Cisco Hood
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Rental Property Investor · Phoenix, AZ · Member since 2017 · 41 posts · 7 votes
8y
@Jackson Pontsler so if you move the property over to an LLC does that allow you to do another low down payment loan like 3-5% or are still required to put 20% down next purchase?
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Jackson Pontsler
Flipper/Rehabber · Salt Lake City, UT · Member since 2016 · 211 posts · 174 votes
8y
@Cisco Hood we bought a duplex with 20% down first. Now we are buying a property with a Fanie May Homestlye loan to get a property and the funds to fix it up, this was 5% down.
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Cisco Hood
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Rental Property Investor · Phoenix, AZ · Member since 2017 · 41 posts · 7 votes
8y
@Jackson Pontsler oh okay I see
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Jeff Lundeen
Specialist · Salt Lake City, UT · Member since 2018 · 30 posts · 5 votes
8y
I don't mean to hijack the thread, but what happens with the 1 year occupy rule if you move to a different state within 6 months (or anytime less than the full year)? Do you have to sell the property?
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Edward A.
Rental Property Investor · Philadelphia, PA · Member since 2014 · 32 posts · 20 votes
8y
Originally posted by @Jeff Lundeen:

I don't mean to hijack the thread, but what happens with the 1 year occupy rule if you move to a different state within 6 months (or anytime less than the full year)? Do you have to sell the property?
No you don't have to sell your property. And if you have a valid reason for moving (work for example), then you're allowed to break the 1 year requirement.
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Michele B.
Vandalia, MI · Member since 2018 · 569 posts · 264 votes
8y
Two years occupancy is about selling and not having to pay capital gains taxes. Two different things entirely.
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Andrew B.
Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
8y
Originally posted by @Jeff Lundeen:

I don't mean to hijack the thread, but what happens with the 1 year occupy rule if you move to a different state within 6 months (or anytime less than the full year)? Do you have to sell the property?
if the bank investigates AND they can prove you knew about the job change before closing they can pursue you for mortgage fraud. if the job change legitimately came up after closing, you are in the clear. The contracts state you must INTEND to live in the residence for 1 year.
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Dave Skow
Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
8y
Cisco - 1 yr ...also the likeliehood of the lender / servicer checking / policing this is remote
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Scott Buchholz
Lender · Fort Washington, PA · Member since 2017 · 17 posts · 5 votes
8y
@Cisco Hood The answer that you are looking for may not be in your loan docs. I don't know what kind of property you are purchasing, for all I know it could be a new construction that is in area that is trying to redevelop and it's possible that they builder put some type of contingencies- requiring 2 years of occupancy before turning the property into investment purposes. Certainly with these scenarios we typically do not get all the details, perhaps your lender is reading something in your Purchase Agreement.
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Stephen Brown
Rental Property Investor · Member since 2018 · 40 posts · 46 votes
8y
@Cisco Hood I would like to give you NON LEGAL ADVICE.
1) if the mortgage stays current, the bank will not call the loan - it hurts them with the FED.
2) If you do live there for 2 years you will not pay any capital gains tax when you sell.
3) If the loan docs say 1 year, then it's 1 year.
4) As @Omar Khan said, have a lawyer look over the docs. Want to find a cheaper attorney? Go to the title company that closed your loan and ask their attorney to look over the mortgage and note and have them tell you how long you must stay in the property before renting. Make sure they show you where in the document it defines the time frame.
5) If you INTENDED to stay there, then you have a case that things changed and you had to rent so you wouldn't default. If you didn't INTEND to stay, but intended on renting, you may have to stay for whatever term there is in the contract.
6) When I first started doing this I had told my banker that it was an investment/rental from the beginning. They still wrote it up as an owner occupied, and improperly answered my questions about "all this owner occupied stuff" during settlement. I did suspect, too late, that it was being written up wrong but I didn't want to rock the boat.
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Robert Lampert
Northglenn, CO · Member since 2018 · 15 posts · 3 votes
8y
@Cisco Hood If you are supposed to be living in the house for "X" amount of time, be sure to do it. If you don't adhere to the documents you signed, you could be committing mortgage fraud. Don't feel too bad, when I bought my primary residence I had to owner occupy for five years.
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Cisco Hood
OP
Rental Property Investor · Phoenix, AZ · Member since 2017 · 41 posts · 7 votes
8y
@Robert Lampert I re looked over all my docs again today I couldn't find anything that states 2 yrs. I found multiple places that say I it is an owner occupy loan and 1 place that states I must occupy the property within 60 days of after closing and live in the property for a minimum of one year after the date of occupancy. And for some reason my lender thinks it's 2 yrs of occupancy. And for sure I don't want to do any kind of fruad if we move before 2 yrs is up. Why did you have to occupy for 5 years?
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Cisco Hood
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Rental Property Investor · Phoenix, AZ · Member since 2017 · 41 posts · 7 votes
8y
@Stephen Brown thanks for the input
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