Contractor · Seattle, WA · Member since 2015 · 5 posts · 0 votes
Hi all,
I was wondering if there is a "standard" requirement for equity in a property that lenders would require before allowing a property be turned over to a rental. For example, if i were to purchase a rental property i believe the standard downpayment would be 30% for lenders to approve of it. (based on discussion with lenders on multifamily deals, not sure if same for SFR)
If i were to purchase an SFR with a downpayment lets say at 20%, is it assumed that most lenders would require my equity in the property to reach that 30% threshold before allowing it to become a rental? Does it vary based on the lender? Is there a duration of owning the property piece to this? i.e. 6 months... What is your experience with this?
Rental Property Investor · Rockwall, TX · Member since 2015 · 891 posts · 701 votes
10y
I've never heard of this before - owner occupied loans typically have a requirement for how long you need to stay in the property. For example, FHA requires you to remain in the property for at least one year. Once you have met that requirement, if you decide to move elsewhere and convert that property to a rental, I don't foresee any obligation that you have to the lender, unless your promissory note with them states otherwise.
Welcome to BP! There is no equity requirement. If you purchase a SFD as an investment property, which you can do with as little as 15% down, you can rent it right away. However, when you purchase a property as a primary residence, your Mortgage will include your intention to live in the property for at least one year. If you convert the property to an investment property within the first year, it could trigger the due on sale clause. Here is what a typical Mortgage will have included:
Occupancy. Borrower shall occupy, establish, and use the Property as Borrower's principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower's principal residence for at least one year after the date of occupancy, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exist which are beyond Borrower's control.
If you breach your Mortgage, the lender can call the Note due.