How do you "define" primary residence for FHA purposes?
Investor · Ashland, OR · Member since 2018 · 202 posts · 38 votes
Could you live in an FHA property for 6 months and 1 day and still have it count as your primary residence? As in, spend 6 months and 1 day sleeping at the property, and the other time of the year not sleeping there, but you'd still have your taxes/utility bills/everything going to that property and being in your name, and it wouldn't be rented out.
Also, what happens if you travel a lot and are out of the country for a few months per year (consecutive)? Do those months count as "living at the FHA property"?
Another question: If the property appraises for 25% more than the purchase price, and you plan to refinance it after 6 months into an "investment" property, is this still okay or is it "bad" because you'd already be planning to refinance it before your one year of residency is over?
Could you live in an FHA property for 6 months and 1 day and still have it count as your primary residence? As in, spend 6 months and 1 day sleeping at the property, and the other time of the year not sleeping there, but you'd still have your taxes/utility bills/everything going to that property and being in your name, and it wouldn't be rented out.
Also, what happens if you travel a lot and are out of the country for a few months per year (consecutive)? Do those months count as "living at the FHA property"?
Another question: If the property appraises for 25% more than the purchase price, and you plan to refinance it after 6 months into an "investment" property, is this still okay or is it "bad" because you'd already be planning to refinance it before your one year of residency is over?
You need to "treat" its as your primary residence for 365 days... You could be on a business trip(s) for 365 days, but that is your primary residence. For example, you mailing address of record with your employer (i.e. W2/1099's get mailed there) and other statements (e.g. bank statments, utility bills, credit card bills, etc.). Nowadays there is paperless billing, but the bills still have an address on them..
There is nothing illegal about having a life change. If in 6mo your job relocates you or you change jobs to a different location, of course you can get a new owner occupied loan. Of course, I would have documentation for this. You aren't supposed to pay off a conforming loan before the 6th payment, so a little tough to get around that. Also, not sure why/how you would refinance into a conventional "investment" loan... If you qualify, the conventional loan is going to be cheaper than FHA. The former usually does a 95% LTV and sometimes 97% LTV. The latter can do 96.5% LTV.. So, if you go FHA for the higher LTV, why bother paying for a second loan, the conventional, since you are going to have to come with cash to the refi to satisfy the LTV. If you are trying to brrr or something, well then yes you are playing a game trying to use a conforming loan designed by the Gov't to help people buy primary homes, not investors.
Be happy to chat, just let me know. Hope this helps. Good luck.
You need to "treat" its as your primary residence for 365 days... You could be on a business trip(s) for 365 days, but that is your primary residence. For example, you mailing address of record with your employer (i.e. W2/1099's get mailed there) and other statements (e.g. bank statments, utility bills, credit card bills, etc.). Nowadays there is paperless billing, but the bills still have an address on them..
There is nothing illegal about having a life change. If in 6mo your job relocates you or you change jobs to a different location, of course you can get a new owner occupied loan. Of course, I would have documentation for this. You aren't supposed to pay off a conforming loan before the 6th payment, so a little tough to get around that. Also, not sure why/how you would refinance into a conventional "investment" loan... If you qualify, the conventional loan is going to be cheaper than FHA. The former usually does a 95% LTV and sometimes 97% LTV. The latter can do 96.5% LTV.. So, if you go FHA for the higher LTV, why bother paying for a second loan, the conventional, since you are going to have to come with cash to the refi to satisfy the LTV. If you are trying to brrr or something, well then yes you are playing a game trying to use a conforming loan designed by the Gov't to help people buy primary homes, not investors.
Be happy to chat, just let me know. Hope this helps. Good luck.
The reason not to do it is because the statute of limitations for bank fraud is ten years. You're going to have ten years of looking over your shoulder because what you've done will be patently obvious to any investigator. Whether it's technically legal or not really matters a lot less than whether it looks shady as hell. That is a hard lesson to learn when dealing with federal law enforcement. I definitely didn't learn it because someone told it to me. I had to experience the glamour myself.
The feds can definitely rope you into trouble over this, some cleancut young agents and an assistant US attorney looking for an opportunity to advance their careers, and you'll have all kinds of fun trying to explain your loopholes and technicalities to a federal grand jury, most of whom will, of course, at least dislike landlords and think their activities should be more carefully regulated, as most non-landlording Americans do.
Buy hey, paint that target on your back, go right ahead. And by the way, this conversation will remain in the public record for anyone who googles "Ellen Narie" for at least the next ten years.
The reason not to do it is because the statute of limitations for bank fraud is ten years. You're going to have ten years of looking over your shoulder because what you've done will be patently obvious to any investigator. Whether it's technically legal or not really matters a lot less than whether it looks shady as hell. That is a hard lesson to learn when dealing with federal law enforcement. I definitely didn't learn it because someone told it to me. I had to experience the glamour myself.
The feds can definitely rope you into trouble over this, some cleancut young agents and an assistant US attorney looking for an opportunity to advance their careers, and you'll have all kinds of fun trying to explain your loopholes and technicalities to a federal grand jury, most of whom will, of course, at least dislike landlords and think their activities should be more carefully regulated, as most non-landlording Americans do.
Buy hey, paint that target on your back, go right ahead. And by the way, this conversation will remain in the public record for anyone who googles "Ellen Narie" for at least the next ten years.
@Ellie Narie I believe what you are struggling with is a matter of perspective.
Here is what I suspect you are contemplating: I have the opportunity to buy a house that would be a good rental property. I don't have enough money to put a 20% down payment into a traditional investment mortgage. If I could buy the house as my primary residence, I only need to put 5% down, live there for maybe 6 months and 1 day, then refi it rent it out and start making cash flow. I assume the equity will be such that I don't have to add any more money into the property, just own it as an investment.
I believe you are using the perspective of a buyer who assumes the traditional approach is the only way to go.
Just hypothetically imagine a rental property that you have already owned for a few years and you have a mortgage balance of $150K. You bought the property for $165K. You believe the current value is at least 25% higher. You estimate you could sell it for about $210K right now. You go to a lender and tell them you want to refi the house. They send an appraiser and it turns out you were right. It appraises for $210K. The bank is willing to give you 80% of the appraised value. That means you will get $168K. As part of the refi, you pay off the old $150K mortgage and keep $18K in your pocket. That's a very typical normal refi for an investment property.
Now take your deal. If you are right that it already has 25% equity and you can show (using Rentometer or similar tools) that you will make a good amount of rent from the property (recommended 0.7% of appraised value for monthly rent), you can get a performance/no-doc mortgage right away. These mortgages/loans look at the value and the reasonably expected lease/rent and if the ratio is sufficient your own documented income is not the driving factor to give you the loan. Same as above your leader would send the appraiser, the value including your expected 25% equity is confirmed and you get 80% of that amount as your loan. Sounds to me like you can pay the seller with that money and start renting right away.
Instead of buying it as your residence and then trying to get out as fast as possible, you could change your perspective and turn it into an investment purchase from the start using a different loan product. That way the minimum occupancy for FHA does not even apply and you can make money from the property much sooner.
@Ellie Narie I believe what you are struggling with is a matter of perspective.
Here is what I suspect you are contemplating: I have the opportunity to buy a house that would be a good rental property. I don't have enough money to put a 20% down payment into a traditional investment mortgage. If I could buy the house as my primary residence, I only need to put 5% down, live there for maybe 6 months and 1 day, then refi it rent it out and start making cash flow. I assume the equity will be such that I don't have to add any more money into the property, just own it as an investment.
I believe you are using the perspective of a buyer who assumes the traditional approach is the only way to go.
Just hypothetically imagine a rental property that you have already owned for a few years and you have a mortgage balance of $150K. You bought the property for $165K. You believe the current value is at least 25% higher. You estimate you could sell it for about $210K right now. You go to a lender and tell them you want to refi the house. They send an appraiser and it turns out you were right. It appraises for $210K. The bank is willing to give you 80% of the appraised value. That means you will get $168K. As part of the refi, you pay off the old $150K mortgage and keep $18K in your pocket. That's a very typical normal refi for an investment property.
Now take your deal. If you are right that it already has 25% equity and you can show (using Rentometer or similar tools) that you will make a good amount of rent from the property (recommended 0.7% of appraised value for monthly rent), you can get a performance/no-doc mortgage right away. These mortgages/loans look at the value and the reasonably expected lease/rent and if the ratio is sufficient your own documented income is not the driving factor to give you the loan. Same as above your leader would send the appraiser, the value including your expected 25% equity is confirmed and you get 80% of that amount as your loan. Sounds to me like you can pay the seller with that money and start renting right away.
Instead of buying it as your residence and then trying to get out as fast as possible, you could change your perspective and turn it into an investment purchase from the start using a different loan product. That way the minimum occupancy for FHA does not even apply and you can make money from the property much sooner.
Interesting. Do most lenders have these type of loans that can work like that? I just keep hearing that I would need 25% down from the purchase price regardless of equity. But if I can somehow do it without that downpayment and just use the equity as downpayment, that would be great.
@Ellie Narie I am not sure where you got the "6 month and 1 day" from. FHA requires 1 year of occupancy. You could travel for a job during that time, but you need to actually be occupying the property. If you are traveling for your job, you are not paying housing expense someplace else. Employers or businesses that require travel will be paying your housing, so in that case it is easy to determine if your housing situation is required or voluntary.
Occupancy is your drivers license address, your tax address, your employers address for you, where you get mail, where all property bills are sent, where your vehicles are registered, where you sleep when not traveling for work or vacation, where your bed is and where your clothes are. This is pretty clear to most people who have lived somewhere, so not sure why you are unclear? Maybe explain your situation a little better and we can help?
Refinancing using conventional mortgage for cash out requires 6 months. Why would you refinance into an investment loan if you are occupying the property? Your wording seems to imply you want to do something not above board.
4155.1 4.B.2.b FHA Requirement for Establishing Owner Occupancy
At least one borrower must occupy the property and sign the security
instrument and the mortgage note in order for the property to be considered
owner-occupied.
FHA security instruments require a borrower to establish bona fide occupancy
in a home as the borrower’s principal residence within 60 days of signing the
security instrument, with continued occupancy for at least one year.