Wanting to turn my primary into a rental

[Alexander Reyes]

I just bought my house a couple months back. And decided to post it on Zillow to get it rented out. My monthly payments are $1081 and I could get it rented for $1400 and tenant is in charge of utilities as well. The thing about it though is that I have to live in it for a year. What if I don’t want to wait 10 months? Is there a way to get around that loophole? An attorney that is willing to help? Or any ideas?

[Dan Weber]

If it is an FHA or some other owner occupied loan that requires you to live it in for a year, then not doing so would be considered mortgage fraud. Penalties for mortgage fraud result in both fines and prison time - not something to take lightly.

Options: 

1. Is there multiple bedrooms? Live in one bedroom and rent the other(s).

2.Sell it and buy something with more units that you can live in one and rent out the others.

3. Is there an opportunity to add value? If so, add value and force appreciation. Try and reach your 80/20 or 75/25 LTV and refi out of your owner occupied loan.

[Alexander Reyes]

@Dan Weber I have a question on that refinance. Wouldn’t I have to make a 20% down payment if I wanted to refinance after I did a forced appreciation? Also what are some examples that I could do for a forced appreciation?

[Dan Weber]

The idea would be to force enough appreciation so that you achieve 20% equity in the property and you won't have to come with money out of pocket at the refinance (outside of closing costs). For example:

You purchase a property for $100k with 5% down. Theoretically, the home is worth the $100k you paid for it and your LTV is 95/5. The comps show that a rehabbed property similar to yours sells for $150k. Therefore, you plan to do some upgrades like: new kitchen, new bathrooms, paint, refinish hardwood/upgrade flooring, finish basement, add bedrooms - whatever it might be - then you could improve the value. Let's say you spend $25k to do a light cosmetic rehab (totally made up number). You are now in the property for $95k + $25k = $120k total. Now you go to refinance, the property appraises at $150k, as your comps showed. You spent $25k to increase the value of the property by $50k. Your LTV allows you 80/20 (some banks only do 75/25 or 70/20 but lets use 80/20 in our example). 80% of your new property value of $150k is $120k - the amount of cash you have in the property. You can now dump your FHA loan with PMI and get into a conventional loan that hopefully does not require you to live there for one year.