Refinancing a Primary Residence Post-Flip

[Tim Porsche]

Hey All, got a quick question for you about a hypothetical situation. If you buy a house with a conventional mortgage, as your primary residence, and do a live in flip, then you go to refinance it after a year based on the ARV and you intend to rent it out, you would be refinancing at about a 1% higher interest rate since you are going to rent it out and not occupy it, is that correct? Or could you still refinance at the lower owner-occupied rate if you are still currently living there, even if you intend to rent it out in the near future? Thanks in advance for any advice, I'm just curious as to how that would work.

[Luke Schrotberger]

Hi @Tim Porsche

Your 1% increase in rate for primary vs. investment is a good conservative estimate. If you're planning to rent it out soon, the person doing your loan would set up the refinance as an investment property rather than a primary residence. If you hide the fact that you're planning to rent out the property soon, then you could still get the rate for a primary residence. However, the banks see this as fraud and if they find out you moved out shortly after the refi (for example, if you apply for a loan on another property), the bank could call the loan due and force you to repay in full. If that happens, you will carry that stigma and will have a difficult to get loans in the future. You have the option to take that chance. I advise my clients that the additional savings of the lower rate is not worth the financial risk you're assuming by going that route.