Trying to understand the logistics and legality regarding loans. I have to move now, and I have a property I rent out in the area. Over the past year, it’s appreciated, and I’ve rented it out for a solid profit, so I am not interested in renting. I see a few properties in my price range and ideal area that I know would rent out for solid cash flow, especially in July/August back-to-school time when I move. I’m also moving in that July/August time to pursue my PhD out of state and plan on buying a home in that city. How bad of a look is this, and what is the legality of this if I were to close on a home in, say, mid-February and then list it as a rental in June, expecting to vacate in July/August? My rationale is that my current city is appreciating, even in this market, and I don’t like renting.
If you buy it as an investment property, you can rent it out whenever you want. Based on what you described, that’s what you need to do. If you buy it as a primary residence and then move out to rent it out in 2 months, it could be considered borderline fraud, especially since you already know you’ll be moving to a different state. However, if you live in it all the way up to having to relocate for your PhD, that won’t be an issue. I’ve done this many times: (1) buy a home, (2) live in it and rent it out, (3) move out making it a full rental and buy a new home. Sometimes it’s 12 months, but my lender says if the rationalization sounds reasonable, moving out earlier and making it a rental is allowed.
@Case
Got it, yeah I’m not planning on moving until at least July, so I’d be actively living in the home.
I told my lender we planned to gut and remodel prior to moving in, which took about 10 months. They were fine with 10% down, no PMI, but it is a balloon mortgage. I’ll have to either pay it off in 6 years or refinance. We were selling another property with significant equity, so if I wasn’t sure I could pay it off, I probably wouldn’t take that route.
If you don’t have a viable plan to move in within 60 days, your lender will require you to take an investment mortgage with a minimum 20% down and a higher interest rate.
When you buy a house, it is yours to do with as you wish. Whether you buy it and never live there doesn’t matter. Do whatever your strategy and cash flow will allow you to do. Once you buy it, you can do what works best for you, as long as the mortgage is paid.
@Keegan
Couldn’t be more wrong. I’ll correct this in my response.
Not at all true. Lenders care very much, especially the first year.
A mortgage has particular commitments that are agreed to.
I’m kind of confused about your timeline. You own a house now in one city and rent it out, and want to buy a second house in your current town with a primary residence mortgage, live in it for 4 months, then rent it out too and move to a new city and buy a third house? This is all a gray area. With the house you want to buy now, if you claim it as a primary residence for the mortgage, you’ll commit to the lender that you will live in it for a year. That’s usually the deal. They rarely pursue this, but if they can prove you knew you would be moving (like an acceptance to an out-of-state school), this is a risk. You might need to talk to a loan broker and tax advisor.
So basically, I’ll be buying a home in my current city that I will live in until at least July/August. I will be renting that home out when I leave my current city for my new city, where I will buy another property to live in for the duration of my degree program.
The biggest risk I see is the acceptance to the PhD program. Your financing paperwork will likely have language that says you plan to live there for a year. While banks know that sometimes you have to unexpectedly move, the key is ‘change’ and ‘unexpectedly.’ Signing the docs while knowing you will move is fraud. It’s usually hard for a lender to prove what you knew, but in your case, you have your acceptance, and they could decide to make a stink. I would suggest buying a home in your new town now and moving to your PhD town sooner if possible. Or buy it, Airbnb it for 4 months, and then move in.
If you’re putting down 20%, you’ve got a chance.