Refinance — USDA to Conventional

[Spencer Vickers]

I have a client that wants to rent out their home and purchase a new home. Here are the details:

Current residence that they want to rent out is on a USDA loan @ 3.75%. They have lived in the property for 15 months. They want to refinance the USDA and take out a conventional loan, so the USDA will be gone and the home will be on a conventional note at a lower rate (2.25-2.5%). Once this transaction is complete, they fully intend to live in the property for awhile while they search around for another home (>6 months).

When they find the new home, they want to take out a USDA loan on the new home. So at this point, they will have a Conventional on their first primary residence and a USDA on their second. When they acquire the second home is still up in the air.

Their question is should they call their refinance a primary, secondary, or investment residence and what will the new property be considered?

My advice to them was since they don’t know when/if they will purchase the new home and rent out their current home, they should list their refinance as a primary residence because it is: they will be living their for an undetermined time period. When they acquire the new property, it may need to be considered a secondary residence since they already have a primary. But that’s where it gets tricky because they will be living in the new home and renting out the original property.

What are your thoughts?