How to co-own a primary residence but not live there?

[David Dawodu]

Hello BP community,

I am confident that someone in the BP community will be able to help me with a deal I am considering. My brother (who lives in San Diego) and I (live in Chicago) have partnered on a 2 unit buy-and-hold rental property (consisting of 2 single family houses on the same lot) in San Diego in 2013. We have done pretty well with positive cash flows and were able to do a cash-out refi of about 75% of our original investment.

Here is the proposal:

Purchasing another buy-and-hold duplex in San Diego. My brother would like to live in the smaller unit (1 bed 1 bath) unit andwe rent out the larger one (3 bed 2 baths). This way we could qualify for the lower interest rate and down-payment that a primary residence would afford. We would be equal partners in the venture and my brother would pay rent for this portion. I think this could work in terms of the deed, title and mortgage but I am not sure how we would share the tax deductions. Does anyone have any thoughts or experience co-owning a primary residence but not living in it? Is this a good idea or would you suggest just owning it as an investment property?

Thanks!

David.

[Chris Mason]

For the mortgage, "non-occupant co-borrower" is the magic term you are looking for, @David Dawodu.

Primary residence interest rate pricing will apply, not investment property. It's been a while since I did a non-occupant co-borrower on multi-unit, so be aware that the below paragraphs might be dated/bad info.

Not all lenders will allow it. Some will. Off the top of my head (and I'm risking giving dated/bad info now), FHA will certainly go for it and Freddie Mac will probably go for it. So it'll be lender-specific overlays that are responsible if you call around and start hearing "let me check guidelines" followed the next day by the word "no."

FHA will always have mortgage insurance, but FHA's loan level pricing adjustment for multi-unit is far kinder, so you will get a way better rate. It will not be 3.5% down, however, with a non-occupant co-borrower.