Occupy, then rent out -- Do I have to refinance?

Question

Let's say I get a HomePath mortgage for 5% down, and I live in it for 1 year as required by the HomePath First Look program.  If after a year I want to move to a different residence and rent out the HomePath property, do I have to refinance it as a rental property?

Do mortgage lenders call the full amount due if they see you are now renting out a property that you financed with a mortgage based on owner occupancy?

I ask these questions because refinancing is expensive, and I want to lock in a low interest rate now, but I may want to move later and rent out the property.  What is my best strategy in this case?  Could I finance a property as a rental, even though I may live in it for a period of time before moving out and renting it?

Elizabeth Colegrove · Answer

We have bought 3 properties as personal properties. We have lived there the required amount of time and moved for either work or personal reasons. We have than bought another house without a problem without refinancing. You can buy up to 10 financed houses under your personal name. We own 5 houses. After 4 it does get more tricky. If you are willing to do the paperwork and other red tap bs it isn't too bad!

Clay Manship · Answer

No, you won't need to refinance. Most lenders will finance up to 4 properties under your personal name, and it's perfectly fine to acquire properties this way. Most people that will refinance will get to 4, refinance into a commercial blanket loan, and then go back to acquiring more properties using Homepath.

Most refinances that people do in this area are related to FHA loans, in order to escape the mortgage insurance, or simply to get another FHA loan. Homepath is somewhat different in that regard as you can have up to four at one time.

You could always buy the property as a "non-owner occupied" while actually living in it through Homepath financing, but it will run you closer to 10% down. However, if you are ready to live in a property for a year, just buy one at an owner occupied 5% rate, then move out and make it a rental in a year.

I would look into FHA loans too, at 3.5% down they are pretty tough to beat for owner occupants.

J. Martin · Answer

@Mark Nugent ,

The others are correct that you can move with no legal issues after you've met the time requirement. However, FHA states that the program is not designed for investors to acquire multiple properties (although it does not necessarily restrict the total number used - just generally 1 out at a time) The nice thing about FHA as @Clay Manship said is that you can still do the low downpayment on a 2-4 unit owner-occupied property like I did (re-financing out now), whereas the downpayment goes up a lot, even on owner-occ, for 2-4 unit homepath loan.

If you're doing SFH, Elizabeth  Colegrove is correct that there are more low-downpayment owner-occ options, including high-ltv loans w/ PMI that roll off, and "piggyback" loans that have a conforming 80% LTV loan, with an additional 80-90/95% LTV loan at a higher rate, that you can pay off more quickly.. Or VA if you qualify (in service/veteran), or Homepath, or FHA, or your city/state may have additional options.. .

Clay Manship · Answer

Hey Elizabeth  Colegrove

Out of curiosity, are you buying your owner-occupied homes with Homepath or FHA? I understand that if you buy a home using FHA, live there for a year, and then want to get another property, you can NOT go out and get another FHA loan. That is, you can only have one FHA loan at a time. Does that sound right to you?

Homepath is a different beast and a lot easier to understand--seems like FHA has a new level of red tape and different things going on.

Elizabeth Colegrove · Answer

I am personally not of FHA if you can qualify for something else. We use va loans and conventional 5%. FHA has a funding fee and pmi. The pmi also doesn't fall off.  Va loan you can use over again until you exceed 417k combined over all mortgages (some areas is greater than 417k). We than use conventional, while there is pmi once you have paid off 22% of the loan pmi falls off without refinancing! This lets you lock in your loan amount.

Sean Kuhn · Answer

However when you move if you wish to get another owner occupied loan, you can but there is some documentation required as to why you are moving. Anything legit is fine but be prepared for that.

Scott Stevens · Answer

No, you should be fine. People get new jobs and have to move all the time. Typically, for owner occupied, the loan docs say you will or intend to live there for at least one year. After that, maybe you didn't like the color of the grass and want to move to a new duplex.

Clay Manship · Answer

@Mark Nugent something else to think about would be to use an FHA mortgage to purchase a multi-family property. Then you can live in one of the units and rent out the others (it is capped at a 4-unit property).

In some markets throughout the USA, and Phoenix should be one of them, you can buy a property at 3.5% down using FHA, rent out the other three units, and MAKE money to live in your current position.

Elizabeth Colegrove · Answer

Everyone has their own strategy. I personally do not like relying on refinancing. Therefore I chose finance options that do not require refinancing.

Mark Nugent · Answer

Thanks for the feedback, @Clay Manship .  That's really good info.  I would love to take advantage of a HomePath mortgage.  I'm currently renting, so it's an opportunity to lower my monthly costs while getting another property that I can rent out later.

Occupy, then rent out -- Do I have to refinance?

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