Posted by wannabedivin on November 10, 2006 at 03:58:15:
Several years ago, based on the mortgage brokers advice (and my first time) I was also told that I only had to be living there at the time the loan closed. I was planning on refinancing, taking money out for a down payment on a new house and turning the old house into a rental. After the dal fell apart, I found out that the broker’s plan was to do the refi first, and before the paperwork caught up he was planning to do the purchase right behind it. The lender found out and refused to do the second loan. (was I stupid). I eventually found a lender, who after I honestly explained what happened made the loan. Although I am not a seasoned investor, I would at all costs avoid trying to defraud the a lender. It seems to me, if I remember correctly, that if the buyer did not occupy the property, the buyer was considered in default and the lender could call the loan. On my documents, there was a way out but it had to with job changes and being forced to move or something like that. I thik the lender would get real suspicious of you moving out after only a few months
Can an individual move into a house with the intention of living there, thus making it a “primary residence” but then instantly move out and rent the property out.
I have heard this is legal and there are no implications. If so, can this process be continued endlessly?
Posted by River City on November 10, 2006 at 09:43:56:
I did a loan once that the purchaser said she was purchasing the property as “owner occupied.” She said she moved into the property and then moved out. The investor that purchased the loan said that would not do. She had to either pay the mortgage in full or pay the difference in the rate for owner occupied and non-owner occupied. Her loan to value ratio was too much that she could not refinance the transaction and had to obtain an equity line just to pay the difference in the rates.
Don’t ever, I repeat, EVER, try to put anything over on your mortgage lender. Eventually, the government gets involved, and you might be participating in this website from a jail cell.
You might want to google “mortgage fraud.” You will get lots of hits. And, look carefully at the punishment. Is it worth saving a couple thousand dollars?
Posted by Frank Chin on November 10, 2006 at 09:27:54:
Bob:
I’ve read thru mortgages I signed. Common for it to call for move-in within six months, and as I recall occupancy for 12 months. Then I’m free to move.
In my book, not at all onerous. And if I move in 12 months, no can can say boo.
Lots of luck with your plan. I have one suggestion, have your real estate lawyer give you the name of a good criminal lawyer, one with lots of experience defending mortgage fraud cases. You may get away with it for awhile BSing the lenders that you are a legal owner occupant buyer. I would love to hear your explaination in court, well your honor I did move into all those places but I had to move out quickly because the voices told me to, so I had to rent them out.
Posted by Bill H on November 09, 2006 at 20:12:12:
Dealmaker is right. Other things that may come into play. If you get the loan as “Owner Occupied” and then instantly move out…the lender may get suspicious when the insurance comes to him as a rental policy…and if you do not change it the insurance may be no good at all…homeowner policy and rental policy are two different animals…cover things differently. and some lenders will actually come out and see if you are living there.
The other answer to your post is yes, you can do this if you are willing to possibly suffer the consequences of your action. There is no law that I am aware of that prevents your prevarication to the lender.
Lenders tend to be understanding if your circumstances change and you have to move because of work, etc…but can be “Hard-Nosed and Hard to get along with” if they feel they have been mislead.
Posted by dealmaker on November 09, 2006 at 16:27:14:
I’m not sure what you’re trying to accomplish here. Are you trying to continue to get mortgages for primary residences? If so you’ll run into some problems as IIRC only 75% of your gross rent will be counted as income. You’ll also run into the problem of there being a maximum of “conforming” loans you can get, 7 I think.
Generally the term primary residence is used for IRS purposes, in which case what you’re proposing wouldn’t do you any good, you still have the 2/5 year rule to contend with.
Primary residence for “homestead exemption” wouldn’t work in most jurisdictions either. If that’s what you’re thinking.
Thanks for the feedback. I have talked to several realtors and even my mortgage broker and they told me I can move into a house and then move out as soon as I want, turning the house into a rental.
The reason I would do this is because I can get a much better rate financing and also 5%-0% down if it is my primary residence.
Is this a bad idea? I have every intention of moving into the house, but in a few months I may decide that I will not need a house that big, and thus move out and rent out the house.
If this is legal, then I was wondering why (theoretically) an individual could not keep doing a process like this, taking advantage of better financing options. I have heard some people tell me that the lender can call the note on me if they do not like what is going on.