Owner Occupied Loans

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Owner Occupied Loans

Michael Sellers
Developer · Brookline, MA · Member since 2019 · 21 posts · 4 votes

Hi everyone,

I live in a more expensive market, so I’ve been considering using an owner-occupied loan as to only have to provide 3.5% (or something similarly low) for the down payment. I’m priced out of my local market without a low down payment loan or some other creative solution.

I have a very advantageous living situation right now, so it doesn’t make sense to me to sacrifice that for a house hack. That said, my question revolves around the “intent” portion of an owner-occupied loan. I’ve heard it mentioned several times on the podcast (most recently David talks about it on episode #469) that if you don’t like your living situation in a house hack, you can just move out whenever so long as you had the intent of living there when you bought it.

Since intent is entirely subjectively and seemingly impossible to prove, could I buy a 3-unit (for example) and rent out 2 units and keep the 3rd vacant for a few months before moving out? I could even renovate the vacant unit while it isn’t rented out. I might be cash flow negative for the short term, but that would be a small sacrifice for getting into a multi-family property for low money down in my area that will no doubt appreciate over the long term.

I’m certainly not trying to get in legal trouble, but I also have no problem playing the game within the rules.

Thanks!

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  • Tim Herman
    Member since 2018 · 2k+ posts · 1k+ votes
    5y

    @Michael Sellers You've posted on a public forum that you don't want to owner occupy a property. What happens if someone sends this to FHA. Mortgage fraud can impose $1 million dollar fine and imprison up to 30 years. Unlikely you will get caught but I would not do it.

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  • Michael Sellers
    OP
    Developer · Brookline, MA · Member since 2019 · 21 posts · 4 votes
    5y

    @Tim Herman Thank you for your input. To be perfectly clear, I am definitely not trying to commit any kind of fraud here. I tried not to make the post too lengthy, but what I was really trying to get at with that question is what the purpose of that "intent to occupy" clause is. If it is just to prevent investors who don't need a 3.5% down payment from using it to leverage into fully occupied investment rentals, I would be accomplishing the same thing by letting the last unit sit vacant for a while.

    I have no immediate plans to do any of this (haven't even spoken to a lender about it), but it's a thought that keeps popping in my head every time I hear a reference to this intent clause, so I figured I would ask the community. Having a background in the tax industry has taught me to look for completely legal loopholes to use to my advantage - NOT to look for ways to commit fraud. Fraud will always catch up to you, but using loopholes is not fraud - it's just playing the game by the rules.

    The way I've heard this intent clause talked about, it seems pretty toothless if you can just decide you no longer want to live in the property for the predetermined period of time with no consequences whatsoever, so I was just looking to see if this was another one of the legal loopholes that people can use. Why even include a clause like that if, like you said, it's inconceivable that they could effectively monitor that sort of thing?

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