Using Cash Out Funds to Purchase Primary

[Brick Biermann]

Hello All,

I recently completed a refi/cash-out on my multi-unit (4 units) property which I also use as my primary residence [been living in one of the units for several yrs]. At one point during the process of the refinancing the mortgage servicer (Better.com) asked if I would use the cash out funds to purchase another property which I replied "No" to because my plan was to use the funds for future upgrades to the property. Ultimately I closed on the refi/cash-out and secured a great low rate.

Now it's been about 2 months later and I decided it might be best [because rates are still relatively low though rapidly on the rise] to move out of my unit, rent it out, purchase a single family and use a portion of the cash out funds as a down payment. So I applied through my savings bank (Ally) for a new mortgage and as luck would have it they partner with Better.com to service their mortgages. Not surprisingly their underwriting team has now asked to explain why I answered "No" on whether I would use the cash out funds from my current residence to purchase another property which is exactly what I'm doing now.

My response was basically, "I changed my mind". I explained because rates are starting to go up and since I managed to take out a good amount of cash I thought it might best to lock in another good rate, use a portion [50%] of the cash out as a down payment to purchase a single family and still have enough left over to do the upgrades I had planned for the refinanced property.

My questions are:

1. Can any of these actions be viewed as potential fraud taking place?

2. Is there any way I can prove to Better.com that I fully intend to use the single family property as a primary residence and not an investment so they don't think I'm just trying to secure a favorable rate?

3. Are there certain qualifications that need to be met to convert a current primary residence to an investment property when purchasing a new primary residence?

Appreciate any advice.