I rent out my primary residence -- what should I do now??

[Bryenne Korte]

Hi All -- I lived in my single family home (which I have an FHA loan) for two years before I started renting it out to tenants. I've now owned the home for three years, and have had almost a year of rental income. I live with my boyfriend, so I don't have and won't need a second mortgage. According to the lender, this home is still my "primary residence" (although I did quitclaim the property to an LLP for protection, does that change anything?) I am now trying to get into investing full time, and would like to use the equity in this property to fund my first deal. My questions are...

- Should I change the "status" of this property with the bank from my primary residence to an investment property? Is there a name for that?

- Are there benefits of doing that (as a new investor)? 

Thanks!!

[Ralph R.]

Bryenne Korte Lots of bum advice on this thread. I can't speak to the taxes but I know some about the rest of it. Your house is no longer your primary in any conventional lenders eyes. It is now a rental period. Any refinancing will most Likely want a 20% down payment either in the form of equity or cash. You cannot use a conventional loan to finance any property in any entity period. It must be financed in your name. Not the name of any entity. That means to refinance in your LLC's name your one and only option is to use a commercial or portfolio loan. If you re-fi using a commercial loan the down payment will be the same or more, the interest rate will be higher 4-5% they usually cost more than conventional loans and carry a higher payment as they are commonly amortized over a shorter period. My last one was 25% down 4.625 interest amortized 25 years but with a 10 year balloon. Your best loan is the one you have as a primary residence. You do not need to change that loan. The catch is that you can only have 1 (your first loan) as a low down payment lower interest loan. All other conventional loans will require a higher down payment and a little higher interest. There's no need to change your financing on that house. It will only cost you money and lower your ROI. Remember you can only refi for 80% of its value. It will cost you an appraisal and tittle cost and other closing cost. Do your math first. Secondly the tittle transfer. There is a due on sale clause in your note. It's not the lender but Fannie and Freddie backed loans are required to have it as well as FHA backed loans. No way to avoid it. You have tripped it by signing a quit claim deed. They are rarely called due and the one exception is sometimes you are allowed to quit claim your primary residence into a trust for estate planning. Taxes if you claim the income from the rental there are many deductions you can take. After you show the rental on your taxes for 2 years this allows lenders to use rental income when considering you for a loan. It also shows the house is no longer your primary residence. This is how the bank knows your not living in your house. You are only required to live there in most cases for one year. When I did it 8 years ago I became eligible for a first time home owners loan after a couple years. I rented the house after living in it 1 year, moved out and 2 years later got another first time home owners loan. Low interest and 0 down payment. They even used the income from my rental. If you are going to refi see if you can do it that way. Don't get stuck on one lender. Check with several. Sorry for getting long winded. RR