Renting out owner occupied?

Question

Hello,I am in process of purchasing my second home using VA loan. The home is new construction and a few blocks from my current home. The builder is offering to rent my home so they can use it as a model home for 18 months.. this would prevent me from fully moving in and meeting the owner occupied status.. this is going to be our forever home so if I changed all bills, dmv, work, bank account and insurance to show this is my primary and move into the garage while renting the rest of the house to the builder.. would this meet the owner occupied requirements? I would be living in both homes until we can fully move in but all my mail and life will be showing the new home.... it’s 18months of zero out of pocket, the builder is offering to pay all costs for the rental agreement.. would you take this offer? I don’t have the money for the conventional down payment but this offer seems too good to pass..

James Cameraon · Answer

@David Pere don’t they typically sell off the loan to different banks after closing? I spoke with the wife and were gonna turn it down. I can’t risk my career with a criminal record.. but that voice keeps talking lol. I am looking into property management for my current home... would you recommend it for the first rental based on your personal experience? I found one with great reviews that charges 7%

John Mocker · Answer

James, If you do rent the house out to the builder you need to make sure that it is properly insured. It is not owner occupied I believe so most companies would not insure it on a Homeowners form. The most likely form would be a Dwelling Fire form. But, you may have to insure it on a commercial form as it is not a residence but rather rented for a business use.

James Cameraon · Answer

@Matt O. We are gonna try for a property management at least to start out since we don’t know much. Hopefully pay attention and learn from them. The one with 7% handles pretty much everything and they have really good reviews about their service. And your absolutely right.. after making the decision I immediately felt a huge weight off my shoulders. I wouldn’t want to be stressed over the next year wondering when and If....

David Pere · Answer

@James Cameraon Good decision!

Matt O. · Answer

James,Yeah that is a tough decision but at the end of the day, regardless of getting caught or not, I know I would sleep better at night without having this dark cloud of potential fraud hanging over me.It is good to see you taking the side of caution. 7% is really good I am in the Pensacola area and am getting rates between 8-10%. It would really depend on how much free time you have and how active you want to be. I know I am looking to take a more hands off approach so I will go with property management for my first rental in the future. All depends on your situation and preferences.

David Pere · Answer

@James Cameraon At the end of the day, if your lender is encouraging it, you probably wouldn't have any issues with it. Idk, interesting spot to be in, haha!

James Cameraon · Answer

@David Pere thank you for the answer.. I was up all night last night thinking about this.. the crazy thing is that when the builder gave the offer, it’s the realtor and lender who are in the office that are encouraging it and saying as long as I move into the garage it meets requirements and that they see it all the time.. I’m definitely leaning toward no because a felony for me means I lose everything in my career path.. but there’s that voice in the back of my head m. I see wealthy shady investors who have been beating me to deals over the last year do things like this and it’s frustrating. It’s annoying to walk the straight line and not make any progress.

David Pere · Answer

@James Cameraon I would not for one reason, and one reason only, mortgage fraud. The VA loan requires that you intend to occupy the residence within 60 days of closing, and since you know that will not be the case, you are playing a dangerous game. Can you afford a down payment? If so, this is a sweet offering, and I'm all for the idea of it...but if you bring this up to a lender they will not (legally) be able to lend to you for that property.The likelihood of you getting caught, or into hot water, is slim, but the cost is Felony. The risk to reward on this doesn't compute to me, and I would see if there is a way to make it work without the VA loan. Now, if you bought with intent to occupy, and then after the fact you got relocated, or something changed, that could be a different story. Knowing all of this ahead of time makes the right answer, "don't do it".