Minimum Timeline - Primary Residence to Investment Home

[Steven Griffith]

Hi All,

I'd appreciate any insight from someone knowledgeable regarding timelines for turning a house-hacked primary home into a full investment property.

Here's the situation:

I have identified a duplex in which the numbers work great, and I have enough saved for 25% down, so I would qualify for a conventional loan and mortgage (great credit, low DTI, etc), and could purchase the property as an Investment Property with the associated higher interest rate. This has the benefit of letting me immediately start renting out both sides of the property (after cosmetic repairs).

Or I could purchase the duplex as a House Hack opportunity using an FHA loan with ~3.5%, down, receive a lower overall interest rate, and use the remaining funds to purchase an additional rental property, separate from the Duplex to increase the overall rental property portfolio. Unlike the first situation, the Duplex would become my Primary Residence (House Hack). I work 100% remotely, so could live anywhere without my employer caring.

I understand that doing something like this would really require the numbers to be spot on - and I get that (there's a huge difference in 3.5% down vs 25% down, PMI comes into play, etc). I'm still playing with the BP calculator to try and find the "sweet spot", if it exists. My question is separate from that, though.

The question I had was this: how long would I need to house hack the property (or in other words, have it as my Primary Residence) before I could turn it into a full time rental without risking the ire of the bank/loan holder if purchased with an FHA loan or a conventional loan?

I found one website that said, if using an FHA loan to purchase a property, you need to move in within 60 days and it needs to be your Primary Residence for at least 1 year. I found another spot where it mentioned only needing to live in the property for 6 months before moving out and turning it into a rental. Finally, I found one thread where someone was told by a realtor they needed to live in it for 5 years.

Help?

How long do you need to live in a property as your Primary Residence before you can convert it into an Investment Property?  Or does this differ by bank?  This property is in Virginia, if it matters at all.

Thank you!

[Cassi Justiz]

You should double check with your lender because there could be wording in the mortgage that could change based on the actual loan product and your specific underwriting. However, generally the rule of thumb is 1 year for FHA loans. Conventional loans have more wiggle room and I've been told that it's more of showing "intent" to occupy on that loan. (Obviously, if you say you are an owner occupant you should actually live there. It could also be hard to convince an underwriter that you need a second owner occupant loan if you didn't live in the first home for any extended period of time).

Also, most people don't realize this but conventional loans also have a low down payment option. You can usually do as little down as 5% on owner occupant homes. The big plus side of doing that with a conventional loan instead of FHA is that your mortgage insurance (PMI) goes away after you hit 20% equity. With current FHA products, you will be stuck with that extra premium for the entire life of the loan.