Flipping with a conventional loan restrictions?

Question

Hi!I'm trying to get into flipping in the Las Vegas, NV area. To finance my first flip deal, I'm planning on using a conventional loan through my mortgage broker. I'm telling him that I'm buying the home as my primary residence (i.e., standard owner-occupied mortgage), and I plan on living in it while I rehab it (i.e., live-in flip). Because I'm planning on living in it, my lender and I are not planning on telling the processors that it's a flip/investment property to get a lower interest rate, points, etc. I told him that I'm planning on living in, rehabbing, and selling the home within 4 months. When I told him that, he said I need to wait until 6 months to sell the home to avoid the pre-payment penalty. He said that most mortgage brokers want you to own a home for at least 6 months if it's an owner-occupied mortgage; he continued to state that if I plan on selling the home that quick, I need to go through with characterizing the home as a home flip or him and the processor will be losing money.Has anyone tried flipping using a conventional mortgage? Has anyone had issues using a conventional loan, in regard to pre-payment penalties when selling your flip before 6 months? P.S., I'm still new to all this: this is my first post. If I'm missing something or this question doesn't make sense, please let me know!

Jeff S. · Answer

Buying your first property by committing mortgage fraud suggests to me that real estate might not be for you, Account Closed. Where did you find a broker willing to play this game? If the property is reasonably habitable and you really and truly intend to live in it during the rehab, there are several ways to do this including a 203k loan or conventional. There are a lot of ways to make money in real estate honestly. I’m not sure why breaking the law appeals to you.If the difference in interest rates between a 203k/conventional loan and a Private/Hard Money loan means the difference between a profit or loss, you bought the wrong property.

Stephen DeThample · Answer

You could also live there for 2 years to get the tax break. And the next flip, use hard money.

Bill B. · Answer

You did say you and your lender don’t plan on telling the processor the truth, or at least the whole truth. Click on the magnifying glass in the upper right. You’ll see this question is literally asked monthly, if not weekly. That’s part of the reason you get short tempered responses. That and the rest of us don’t want to lose favorable financing options unique to the US because of the actions of new people to the field. That’s how restrictions, fines, and outright denials start happening. Honestly, I assume you already know all this. If not, then you should probably read more books and watch more videos before getting started. The only thing worse than not getting started is getting started off on the wrong foot. Ps. I’d start looking for a new lender. If he’s willing to cheat one side of the deal to make money he’s probably “morally flexible” about screwing anybody to make more money.

Jeremy H. · Answer

Haven't made a single deal yet and already intending to commit mortgage fraud...There is a strategy here but you are doing it wrongThe strategy would be to buy the house, as a owner occupant, live in it for a year (barring any life changing events) then move out and sell/rent. You do anything else and you're going to find yourself walking on thin iceI had someone try and do this with a HUD home I bought - thing is I already lived in the neighborhood and wanted to buy the house to move into. I am moving into the house and will be renting my current house. I actually like the new one so much I'll probably be there for the next 5 years. Just put me a big 12x20 shed in the backyard even

Account Closed · Answer

I guess, let me clarify: this is my first home that I’m buying, and I’m trying to make this a worthwhile investment. Whether it be a buy and hold with some rehabbing involved or house hacking/brrrr, the home is still going to be my primary home with hope of also making it my first investment, if that makes sense. I appreciate the clarity. What my broker was telling me contradicted the reading and research that I was doing, so I wanted to confirm what he told me was something legitimate; in other words, I wanted to see whether someone else have done it, and I was just not understanding something.It was just a stupid question, and judging by everyone’s reaction to it, also offensive apparently. I appreciate you letting me know why. I just thought the forums were a place to ask any kind of question without judgment: that’s literally how the podcast framed it.

Stephen DeThample · Answer

I would not repeat anything your mortgage broker tells you to do illegally online. It could get of you into trouble. You should look into hard money lenders like Kiavi. It will cost more but will give you credibility later. Good luck 🍀

Ryan Deasy · Answer

you might want to think about hard money. where will you get the funds for rehab? i know you will be doing most yourself, but hard money gets it paid 100% for you

Account Closed · Answer

First off, this is just a question. I am planning on living it: that is why I qualified for an owner-occupied mortgage. Hence, I called it a live-in flip. If I have to hold it for more than 6 months, then I'll hold the property, rent out the other rooms and unit, and house hack it.Nowhere did I say that I *wanted* to commit mortgage fraud. Also, nowhere did I mention that "breaking the law appeals" to me. I'm asking a question, which is what the forum is for. I'm new to all this and trying to learn what is possible. Altogether, there is no need to be rude and put your negative energy on me by saying that 'real estate' might not be for me. Keep your bad energy, negativity, and assumption to yourself.

David M. · Answer

Account Closed... pretty much support all of the above..To your post... 6mo comes up for multiple reasons. Of interest to your lender is that if you extinguish the loan before 6 payments (not exactly 6 months), the lender is penalized, not you. They lending company loses the profit they made on reselling the loan and the loan officer will be made to return their commission. This applies to conforming loans. Your lender is not correct, or you misunderstood him/her. You have no prepayment penalty, but it financially hurts the lender and the loan officer.Conforming loans are intended for actual homeowners, not investors. Yes, investors all the time will use conforming loans when investing, but they don't so blatantly abuse it.If you are going to try for hard money loans or similar, you won't be able to use the property as a residence. There are trade-offs to everything.

Account Closed · Answer

I didn't go with it. I'm here to confirm it. I received confirmation from everyone that it is indeed sketchy.