All Forum Posts by: Thomas Cuddihy

Hi Thomas,
Thanks for asking your question. Your conventional mortgage will be around 20-25% down (banks call this 75-80% LTV or loan to value). To get a lower down payment, many people will get a FHA government-backed loan. The federal government essentially guarantees to the bank that the money they loan will be repaid. If you default, they can get it back from the government. This is a plan to help homebuyers who otherwise couldn't buy due to not having enough down payment or credit. Right or wrong, the creators of this type of loan want to have these types of buyers in houses, not investors.
The bank who is issuing an FHA loan needs to do diligence to be sure that the homebuyer will be living in the house. The banker is not driving by your place spying on you, though. This is the reason your friend recommended this strategy. The problem for the owner arises when, occasionally, the bank will get audited and they need to assure the auditors that their mortgagees are actually living in the house. If you are not, then the bank may exercise a clause that makes the entire loan immediately due. That would be the worst case scenario for you.
Another problem with this strategy is it is not expandable. The bank will immediately know you are not living there any more when you come to them asking for the next FHA loan.
My advice is that while you probably might get away with doing this once, it'll not be sustainable. Why not save up for the 20% down and start with a good chunk of equity that will help you for the more difficult times that can come in real estate?

Great insight, thank you so much!

0 Votes

Columbia, Maryland

Hi, all! My name is Thomas and I am at the VERY beginning of my real estate investing journey. Bigger Pockets has helped my confidence to get started, so I'm very excited to be here.

I currently reside in Montgomery County, Maryland, which is a fairly expensive market to buy/sell real estate in. I was having a conversation with a friend who invests in real estate, and I told him my concerns about having enough cash for a investment property. 15%-20% down to secure traditional financing is a lot of dough, but my friend suggested that I apply for a loan as a primary resident, and then rent it out anyway. I feel like that's a "too good to be true" scenario, but I'm not sure if that's something folks here have done before.

So there's my question: is it possible to apply for a loan as the primary resident, and then rent out the property? Is there a time limit before I can do that? Or, better yet, am I thinking about this all wrong?

Any help is much appreciated-- thank you, all!

1 Vote

Columbia, Maryland

All Forum Posts by: Thomas Cuddihy

Thomas Cuddihy has started 1 posts and replied 2 times.

Post: Loan Options - Primary Residence vs. Investment Property rules

Post: Loan Options - Primary Residence vs. Investment Property rules