Can I move out from my primary home then rent it without penalty?

[Kelvin J.]

Hey all

I just got off a call with a mortgage Broker. They told me it is pretty common practice to purchase a house as your primary residence with 3% or 5% down, wait the required year (I guess specifically for FHA, USDA) then move out and get renters in. No permission from the lender needed, no punitive interest rate hike, just a change in insurance policy and lost homestead. It also means avoiding a huge 20%-down investment loan up front, higher interest rate, inflated insurance and huge difficulty refinancing to get cash out at 70% LTV down the line.

I know it is a slow way to build a portfolio but is this correct?

The reason I asked is because I went the investment route (to take advantage of the increased income/buying power I would get from the cash flow generated for the next loan) and while I have better income, I now have a lot of capital tied up I can't release easily or cheaply. Nor can I sell without incurring capital gains tax or qualify for an equity line of credit as I don't live there. I suspect I may have taken the wrong route...

Thanks