Lesson learned. . . seeking encouragement

Lesson learned. . . seeking encouragement

Real Estate Agent · Phila, PA · Member since 2017 · 126 posts · 100 votes

Hey BP. I wanted to share a tough lesson learned, partly to help others learn from my experience and partly to seek any words of wisdom/encouragement. :(  Thanks in advance!

I am just 2 weeks from closing on my first property. My plan all along had been to rent out the spare rooms while living in one, and live for free! While I can afford and qualify for the place on my own, I was excited to accelerate my savings rate while building equity and jumpstarting my real estate investing career. I had done plenty of research on the zoning and occupancy laws in my state to make sure I was good to go! However, I read the fine print on a mortgage document I was asked to sign the other day, which stated that I am not allowed to rent out rooms with this particular loan. I brought this to the attention of my lender, as I could have sworn that I had shared my plan to rent out rooms from the very beginning! It was my whole reason for purchasing a home all along. To my dismay, he claims I never mentioned this to him, and of course I don't have it in writing so - no proof. Sigh. Granted, I can always wait the 1 year minimum on the loan before moving out and renting the place then, or refinancing, but I had built my whole plan around the idea of renting the rooms from the start - and I wanted to do it legally! It didn't occur to me that my lender would have restrictions. Also, I asked my lender if they had any other types of loans I could switch to that allow this, but interest rates have gone up since my commitment and it is unlikely I'll qualify for any other types of loan at this time, at least before closing. I was disappointed to say the least. Now I am just hoping that it will be worth the wait to rent out the rooms or whole place later down that line, when I am allowed to do so. Anyway, I hope this post is helpful as a learning experience, and would love to hear if anyone else has ever had something like this happen and managed to see the positive side!

Thanks BP!

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y

I really have never heard of a mortgage that does not allow roommates who pay for rooms.. your not running a boarding house you LIVE there right ? the main issue is you have to owner occ.. if you rent a room out I really don't think that is a violation.. @Samantha Miller   @Chris Mason  Chris is an expert at these loans maybe he has a suggestion..

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  • Real Estate Broker · Windsor, CT · Member since 2015 · 1k+ posts · 268 votes
    7y

    @Samantha Miller  .. may I ask what kind of loan is it that you have applied for?

  • Real Estate Agent · Phila, PA · Member since 2017 · 126 posts · 100 votes
    7y

    @Melissa Gittens It's a PHFA loan (linked in a post back on page 1 of replies for reference). Are you familiar with it? (Note: I really didn't have a specific type of loan I was aiming to get, I just worked with a lender, told them my goals, and they chose the loan product for me.)

  • Investor · Riverside, CA · Member since 2014 · 239 posts · 177 votes
    7y
    @Samantha Miller sounds to me like you’ve.. “Got a couple friends who are living there for free and are paying you back a monthly personal loan in cash for a year..” hints the quotations lol.. I definitely wouldn’t overthink it. You’re going to do great.
  • Fort Worth, TX · Member since 2018 · 117 posts · 16 votes
    7y
    @Samantha Miller rent it out anyway, it’s not like a police officer is going to check on you to make sure no one else is living there.
  • Real Estate Agent · Phila, PA · Member since 2017 · 126 posts · 100 votes
    7y

    @Dylan Hargrove FYI I asked... I got a "If we do it for one person, we have to do it for everyone" response. Also that it's not amendable by the actual lender, it's a template from a state program - no changes or addendum allowed. :(  Was worth a shot!

  • Saint Paul, MN · Member since 2018 · 189 posts · 107 votes
    7y

    @Samantha Miller- This sounds like a very unfortunate circumstance, but I would probably say ignore it I don't think it is going to matter. But  at the end of the day it is in there and I understand the frustration and wanting to do everything legally and right especially on the first one.

    One other option would be to re-finance out of that loan once you close since you're so close to closing. There are obviously costs involved which sucks but if you are hoping to do this and the jargon makes you feel uncomfortable you could go through that process fairly quickly. If it comes up while you're about to close on the refi you're not under any deadline and can back out very easily if things don't line up. Just a thought/option- maybe go through a different loan officer. Best of luck. Feel free to message me if you have any other questions, my sister is moving to PA shortly so I'll probably make a trip out there at some point.

  • Sacramento, CA · Member since 2018 · 2 posts · 6 votes
    7y

    I say rent the rooms. 

  • Contractor · Spokane Wa · Member since 2018 · 25 posts · 30 votes
    7y
    @Samantha Miller I was about to close on my 1st deal and the loan company asked for the Tax documents for my wife who left me over a year ago........ I had to pull out of the deal and I’m waiting for my divorce to be finalized......... Lesson learned there........ As for your loan........ I have never heard of that before. I would go through with a different loan option. There are plenty of banks out there who give out loans. I wouldn’t be restrained by anything like that. Personally..... I’m sorry to hear about that. Keep your head held high. We all learn. This is a minor setback. You can refinance out of that loan also
  • Real Estate Agent · Phila, PA · Member since 2017 · 126 posts · 100 votes
    7y

    @George J Anderson Jr That's so unfortunate! I hope you're able to find another deal. And yes I agree, I will be looking into refinancing options. 

  • Peter LiguoriPro Member
    Chicagoland & Southern New Jersey · Member since 2017 · 6 posts · 1 vote
    7y
    @Samantha Miller Sam: you have gotten a lot of feedback on your situation so this idea may have been covered already. Perhaps a roommate can cover food, utilities, trash, etc instead of rent? An agreement that covers other items doesn’t seem like it would violate your mortgage. Just a thought....... Pete
  • Lender · Newark, NJ · Member since 2016 · 695 posts · 252 votes
    7y

    Lesson learned, sucks you had to learn it a week before closing. A year goes by fast and hopefully you have equity on the home where you can pull some out and invest with. Best of luck and don't let this stop you from beginning your journey.

  • Rental Property Investor · Closter, NJ · Member since 2015 · 884 posts · 722 votes
    7y

    @Samantha Miller. Like others on this thread, I have never heard of a mortgage making this requirement. Perhaps you should tell the mortgage broker to remove that clause, or you refuse to sign. YOU are the customer, and I am sure the Broker doesn't want to lose the deal. It's worth a try.

    Good luck.

  • Real Estate Agent · Cleveland, OH · Member since 2017 · 184 posts · 253 votes
    7y

    I know this is a public forum but I can't live with the guilt anymore...  I once jay-walked.

  • Real Estate Agent · Cleveland, OH · Member since 2017 · 184 posts · 253 votes
    7y

    Did you know that it illegal in Ohio for five women to live in the same house? Or if you live in Austin Texas to carry wire cutters in your back pocket? It sure is hard to live by all these stupid rules but I think that whatever you choose to do, it will be alright as long as you don't post it on social media.

  • Real Estate Agent · Phila, PA · Member since 2017 · 126 posts · 100 votes
    7y

    @Michael Kiley Haha I know you are joking, but if only it was the same! Jaywalking = $50 fine, mortgage fraud = $10k fine plus 30 year prison sentence (or so the affidavit states). I honestly wish it was just the equivalent of a petty jaywalk fine. :( 

  • Real Estate Agent · Phila, PA · Member since 2017 · 126 posts · 100 votes
    7y

    @Michael Kiley There are definitely a lot of crazy laws out there! I've heard the 5 women one before - I think it had to do with brothels? Haha. Truly it's not a matter of "what can you get away with". This isn't a game to me, I would like to be a serious investor someday and don't want to start out having to dance around rules! I want to be able to post anything I want about my investment strategies on social media! Not hide and shield things.

  • Real Estate Agent · Commerce CIty, CO · Member since 2018 · 127 posts · 78 votes
    7y

    What the lender doesn't know wont hurt him. Enough said. Or, give the rooms away for free and simply accept money as a "gift".

  • Real Estate Agent · Phila, PA · Member since 2017 · 126 posts · 100 votes
    7y

    @Jason Cacioppo Technically even that would violate the affidavit, which says I must disclose any income-earning adults living there in Year #1 (does not say they have to be paying me rent, they want to know anyway). 

  • Real Estate Agent · Commerce CIty, CO · Member since 2018 · 127 posts · 78 votes
    7y

    @Samantha Miller This is extreme. I would again ask them to remove or I would find a new lender under principal alone. You're a customer, there making money off of you. Three options, lie to them, walk away, or suck it up for 12 months.

  • Real Estate Agent · Phila, PA · Member since 2017 · 126 posts · 100 votes
    7y

    @Jason Cacioppo Agreed - I totally disagree with the restriction. Leaning towards option 3 haha. 

  • Investor · Templeton, CA · Member since 2016 · 60 posts · 21 votes
    7y
    @Samantha Miller Wow! I’ve in real estate busIness for years and this is the first I heard a lender not allowing you to rent rooms. Don’t break the rules. Maybe you should consider finding another lender. Good luck!
  • Rental Property Investor · Midland Park, NJ · Member since 2018 · 38 posts · 13 votes
    7y

    @Samantha Miller could you do Airbnb instead?

  • Real Estate Agent · Phila, PA · Member since 2017 · 126 posts · 100 votes
    7y

    @Sheena Lee I wondered that too! But I still think this is considered "rental" - even if a vacation rental. Unfortunately the affidavit doesn't define their use of the word "rental" - so I must assume they mean rental of any kind. 

  • Member since 2018 · 46 posts · 43 votes
    7y
    @Samantha Miller If I couldn’t get out and it’s not against the law, I’d rent them. What are they going to do? The most they could get is your 3% and by that time you’d be at break even from rents. Another option: as part of your rental agreement, sell a 0.5% (or less)ownership that can be bought out by you only at the time of your choosing. That would make them owners.
  • Real Estate Agent · Lake Oswego, OR · Member since 2016 · 2 posts · 0 votes
    7y

    People's life circumstances change all of the time, sometimes suddenly and completely out of the blue. If you fell on hard times, I can't imagine anyone with common sense penalizing you for renting out a room to be able to pay your mortgage. Pure insanity! Wonder if your roommate could cover groceries in lieu of rent? I don't know? Thinking outside the box. I would never advocate to intentionally act illegally. I myself am a rule follower, even if they are silly and impractical. I would rather suffer the known consequences than worry about legal ramifications. Good luck to you!

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