Owner occupied w/partner, 3% conventional loan advice?

Question

Hello all,I have been searching but not finding exactly my scenario. If you're aware of some reading I can do on this, I'd appreciate a pointer to the material!My partner and I are interested in buying a 4plex, and both living in the same unit. We are both providing funding, and intend on separating responsibilities via a written agreement. I understand that if either one, or both of us, do not live in the property then it's either mortgage fraud or we are looking at commercial/investment loans. We considered using an LLC and living in the property, but again would be pushed into the commercial/investment side.If we are BOTH living in the property, is this a legal, above board way of purchasing a 4plex?I do not think it's entirely relevant, but for what it's worth my partner is my long term girlfriend, we do intend on getting married, but it won't be before we'll be in a position where we're ready to buy. If needed I can buy it in my name only, but we would both really like to get her on the title, and have her contribute to the deal.

Caroline Gerardo · Answer

LLC title doesn't line up with conventional loan. You can borrow and hold title with girlfriend and lender won't ask for some agreement between the two of you BUT HOWEVER is this the right plan? Does she (or you) bring more income with no debt and same or higher middle FICO score? IF the partner brings down score, has huge student loans or no income maybe you plan this another way? Buying real estate with an unmarried partner who plans to occupy can be sticky. What happens when you break up? Who stays and who goes? What is time frame to sell and repay the girlfriend? How will you calculate expenses, investments, repairs, what if rent is paid in cash and there's a fight? How will you file IRS returns? Plan out all the ins and outs. What happens if there's a fire? Get a yellow pad and list all the possible problems and the solutions. Then handwrite an agreement between you two and get two witnesses.

Will Fraser · Answer

Hi @Levi Bingham - This flies in the face of simplicity. Occam's Razor is a wise guide here.You're going to need to move heaven and earth to get your GF on the loan when, in reality, that's simply not how the loan product is designed. You can typically get an unrelated co-signer passed, but OVER AND OVER AGAIN we see these things go sideways and it is NEVER the initial thought or plan of the couple.The simplest solution (usually the best) would be for YOU to purchase the home and borrow the down payment money (or a portion) from your LT GF. Have a payback plan with her that includes whatever you want it to (a portion of cashflow, an interest rate, etc) and then IF you two get married the issue with being on title goes away. If you don't, you've got a clean and tidy situation to walk through -- simply abide by the terms of the payback plan.

Levi Bingham · Answer

Thank you @Caroline Gerardo, those are all excellent scenarios to consider! This will definitely take some time for us to go through all the scenarios and options, but I think it will be time well spent. Thus far, it looks like I'll purchase it 100% on my own, just to keep things as simple as we can. We will still look at all of the options before we decide though.

Levi Bingham · Answer

Thank you @Torrell Palmason, I appreciate the perspective. We will discuss these options further, so far it sounds like this will be much cleaner to just have me on loan and title, and go from there. We won't leave any stones unturned though. I appreciate you taking the time to reply!

Torrell Palmason · Answer

Looking at your post there are three options I see off the start. First is to Purchase with you both on the loan both on Title. The second is to Have you purchase and put her on title. The third is to have you complete the transaction by yourself with only you on the loan and title. All of these options have their own merit and that is for you and your GF to decide which works best. If you are both on the loan you can count both of your income but it also will stack both of your debts so if one of you doesn't make much and have a lot of debt this could be a poor option. If you are on the loan solo and add her to title then its only your income/debt which depending on your situation could be good or bad. The final is the same as before, the loan the only real benefit I see to this option is if you split up then there is no argument over the unit. The best option for a loan I see for you would be an owner occupied FHA loan which would be 3.5% down on a 1-4 unit. You can use this loan with any of the above options and if you are both doing well and secure with each other I would suggest both of you going in on the loan as this will help debt ratio. However, this is a decision the two of you need to make with a lot of discussion. Best of Luck!

Levi Bingham · Answer

Thank you @Will Fraser, I do try to follow the KISS principle so if I have to violate that to get us both on the title then we will go the other route. I appreciate the reply!