Lender Says he can call note due at any point!

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Lender Says he can call note due at any point!

Shivam Patel
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes

Hey guys,

I'm househacking in New Jersey. I was refinancing my loan out of an FHA into a conventional when the loan officer and I were discussing the rates and all. Then, I asked him, what my chances of applying for an FHA after would be. He then proceeded to tell me he can't then apply me for a conventional loan, it must be for an investment property, and can they can potentially call my loan note due if i don't use it as a primary home. I am staying there currently, but then can I not move out at all without turning into an investment type loan? Rates are much higher and I may not be able to refinance then. I don't want to do anything illegal or anything to put me at risk of the loan note being called due. What should I do/ how are other people getting loans for their second property?

Sincerely,

Shivam Patel

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Zack KarpPro Member
Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes
5y

@Shivam Patel it's very simple. Any loan for a primary residence...whether it be a purchase or refinance, whether it's Conventional, FHA, or VA...you will be signing a legal document at closing called a Mortgage, that states you are going to occupy for 1 year.

If you are looking to refi from FHA to a new primary residence Conventional loan, that starts the 1 year clock over again.

If you are intending to not live there for another year, and you did the refi as a primary residence, you are committing mortgage fraud.

Your lender is doing his job and letting you know the law.

Best of luck!

847-387-5513
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  • Shivam Patel
    OP
    Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
    5y

    @Lynne Smith

    Yes so I'm house hacking with an fha.

    Just you guys have an idea: I get 1800$ in rent and my mortgage is 2100 and some change. I bought the property at 315k and it's appraised now to around 345kish with the hot market. However I put more than 3.5% down when I bought the property, maybe close to 10. My loan on it righr now is about 286k. And I have about 25k cash. I save about 4000 a month. After I rent the whole house out, my property manager estimates about $2400 in rent (conservative).

    Now for the investment property. I'm guessing I can't use HELOC because I don't have 20% equity yet. Based on the conversation above it doesn't sound like I can refinance either unless it's an investment property refinance. But then I can't live there until I find my next property. My only option seems to be holding the FHA loan with the good interest rate for now, and buy a fourplex with 20% down after I hit my 1 year in September. But even then I feel like a fourplex at 20% in my area would be close to 40k in just the down payment. I know I can't sell because I'll take a loss either.

    My main purpose is to get another investment property but not live with my tenants. I didn't think it through the first time and I need to keep a buissness professional relationship with them so getting into a small multifamily makes more sense to me where my walls are seperate. Also with the work job change I wanna be closer to south jersey.

    My options that I'm thinking rn:

    1. Refinance into an investment loan, and move out and live with my parents for a few months while I apply for an fha and find a new property. Even though my interest rate would be a lot higher it will give me another tenant in, and cashflow and reset my fha.

    2. OR refinance into an investment loan and then use a 1031 exchange into an investment loan for a fourplex. And then work on using the primary loan.

    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    5y

    @Shivam Patel

    Just take @Steve Vaughan's advice. Leave the FHA in place and never use it again. At 2.375%, your rate is better than anything out there right now. Prepare to get a new conventional loan on an owner occupied property in 5 months and stay in that house for a year. You can do that as many times as you have down payment and closing costs.

    Stephanie

    3Reply
  • Shivam Patel
    OP
    Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
    5y

    @Stephanie P.

    Okay. I'll do that. I'll start saving 20% for the fourplex then. Thanks

    0Reply
  • Joshua D.
    Investor · Columbus, MT · Member since 2013 · 1k+ posts · 1k+ votes
    5y

    @Shivam Patel

    Don't refinance into an investment loan! Listen to Steve...

    If you talk to a lender they may tell you you need to redo into "an investment loan" so the make a commission. Just wait the year.

    1Reply
  • Shivam Patel
    OP
    Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
    5y

    @Joshua D.

    Okay, only reason why I was saying that was thinking that was because may need to wait a lot longer for the next property because I'll have to reach 20% for the next one right instead of 3.5%. But you're absolutely right because of the low interest it's a lot better to hold the FHA right?

    0Reply
  • Ted Rud
    Rental Property Investor · Fargo, ND · Member since 2017 · 17 posts · 18 votes
    5y

    I would not touch your original loan, as Steve has mentioned. You do not need to refinance it in order to rent out the entire house either. Read this - https://www.investopedia.com/a...

    As far as the down payment on your next property, you may still be able to buy with 3.5% down for an FHA or possibly 5% down for a conventional as long as you plan to live in the next property for at least a year. This will mainly depend on how long you have lived in your current house and what your debt to income ratio is. This is where meeting with a banker to go over those details will come in to play.

    1Reply
  • Ted Rud
    Rental Property Investor · Fargo, ND · Member since 2017 · 17 posts · 18 votes
    5y

    Also, most banks will allow you to buy a new property (1-4 units) for 5% down, live there for a year, and then buy your next owner occupied property for 5% down until you have somewhere around 10 loans. You do not need to refinance any existing loans. This is really nice as rates are near historic lows. This allows you to lock in a 30yr fixed rate at a low interest rate!

    Now if you plan to scale faster than one property a year, the second property would be looked at as a commercial loan. My banker requires 20% down and a 20-year term that has a 5 year ARM (adjustable rate mortgage). These commercial loans have a little bit higher interest rate as well. Different bankers may require 25% down or a 15-year, 5yr ARM, so it is important to find a banker whose rates work for you.

    I'm guessing your banker is thinking you are planning to buy this 4-plex within 1 year from when you purchased your current duplex, or that you do not plan to live in the 4-plex? That might be their reasoning for telling you that you need to to either refinance your current house to have 80% LTV, or why you need to put 20% down on the 4-plex.

    0Reply
  • Shivam Patel
    OP
    Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
    5y

    @Ted Rud

    I would plan to live in the fourplex and househack again for sure.

    0Reply
  • Ryan KellyBusiness Member
    Real Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes
    5y

    @Shivam Patel here's an easy solution to all your questions...make friends with a quality lender. Take them to lunch. Ask them ALL these questions and more to understand the different loans, terms, options, and rules around refinancing. That one lunch is worth tens of thousands of dollars over the remainder of your investing and purchasing career. Best of luck!

    [email protected]512-674-5478
    Ryan Kelly Group - Keller Williams5110 Reviews
    WebsiteView Page
    4Reply
  • David Lao
    Real Estate Agent · Oakland, CA · Member since 2017 · 60 posts · 25 votes
    5y

    I agree that listing agents value offers made with conventional loans over offers made with FHA loans. With an FHA loan, you might need to put down more than 3.5% down. If it's an income property, then it'd need to meet a self-sustainability test, which you can just look up on Google.

    There are some incorrect info here. FHA MIPs can stop under certain conditions. Reference: https://www.hud.gov/sites/docu..I also have an FHA loan on a 4-plex that has a 11-year MIP requirement.

    1Reply
  • David Lao
    Real Estate Agent · Oakland, CA · Member since 2017 · 60 posts · 25 votes
    5y
    At a low interest rate of 2.375%, I think it'd make more sense to hang onto the loan than to refi it. It's mostly just math so you can model the scenarios in which you hang onto that loan and its low rate and compare it to the scenario in which you refi it into another loan with a higher interest rate. I personally did the comparison myself and for my situation (I got 2.25% on my FHA loan with ~82% LTV), my MIP won't need to be paid after the 11th year and I would come out ahead financially in all scenarios (in the beginning because I put less than 25% down, and in the end because my monthly payments would be lower for 19 out of 30 years due to the eliminated MIP after the 11th year). I suggest you double check your loan agreement to see how long it says your MIP needs to be paid. If you put at least 10% down, then chances are your MIP won't need to be paid after the 11th year and by that point your monthly payment would be much lower. Personally, I wouldn't refi the loan at the rate that you have.  


    Originally posted by @Shivam Patel:

    @Lynne Smith

    Yes so I'm house hacking with an fha.

    Just you guys have an idea: I get 1800$ in rent and my mortgage is 2100 and some change. I bought the property at 315k and it's appraised now to around 345kish with the hot market. However I put more than 3.5% down when I bought the property, maybe close to 10. My loan on it righr now is about 286k. And I have about 25k cash. I save about 4000 a month. After I rent the whole house out, my property manager estimates about $2400 in rent (conservative).

    Now for the investment property. I'm guessing I can't use HELOC because I don't have 20% equity yet. Based on the conversation above it doesn't sound like I can refinance either unless it's an investment property refinance. But then I can't live there until I find my next property. My only option seems to be holding the FHA loan with the good interest rate for now, and buy a fourplex with 20% down after I hit my 1 year in September. But even then I feel like a fourplex at 20% in my area would be close to 40k in just the down payment. I know I can't sell because I'll take a loss either.

    My main purpose is to get another investment property but not live with my tenants. I didn't think it through the first time and I need to keep a buissness professional relationship with them so getting into a small multifamily makes more sense to me where my walls are seperate. Also with the work job change I wanna be closer to south jersey.

    My options that I'm thinking rn:

    1. Refinance into an investment loan, and move out and live with my parents for a few months while I apply for an fha and find a new property. Even though my interest rate would be a lot higher it will give me another tenant in, and cashflow and reset my fha.

    2. OR refinance into an investment loan and then use a 1031 exchange into an investment loan for a fourplex. And then work on using the primary loan.

    0Reply
  • Shivam Patel
    OP
    Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
    5y

    @Ryan Kelly I actually just had a discussion with @Zach, from above, today for an hour. Man, is that man knowledgeable. If your in Chicago and you need a lender, he's the guy. I learned more in an hour than the few months haha. One things for sure, not a lot of discussions out there about what mortgage fraud is, reverse mortgage fraud is, what boarder income is, etc. @Zach I really do appreciate you walking me through everything bud.

    1Reply
  • Bonnie LowPro Member
    Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
    5y

    @Shivam Patel it's clear you're trying to do the right thing and also to do your due diligence. Financing can be very confusing, so don't feel bad that you have these questions. I also think you probably have some time - that is, there's no sign interest rates are going up significantly any time soon in my opinion. To qualify for FHA owner-occupied financing you have to intend to live there at the time you take out the loan but circumstances can and do change - job changes, marriage/divorce, illness and other reasons for relocation so it is not uncommon for someone to leave a home they originally financed as owner occupied. If I understand what you're describing, it sounds like your lender is being particularly aggressive and probably does not want you to refinance out of his/her loan product, though that is your choice. If you're using the same lender from your original owner occupied purchase and trying to buy another owner occupied property through that lender, of course this is going to raise red flags and they're required to read you the rules. It may not be legal or even advisable to have more than one owner-occupied rules but I can tell you there are many people who do - some for legitimate reasons and some not so much.

    [email protected]
    1Reply
  • Shivam Patel
    OP
    Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
    5y

    @David Lao

    Wow you got an amazing rate! That's the lowest I've heard of so far, that's amazing. I'm curious, Why was it more advantageous for you do fha 82% LTV vs conventional 80%. Wouldn't your payment be significantly lower without MIP?

    0Reply
  • Shivam Patel
    OP
    Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
    5y

    @Bonnie Low

    I see what your getting at like if someone was trying to moving. I always wondered how people did that when they move to a different state for a job. I had a buddy who moved but I never understood how he did it or what the process was.

    0Reply
  • Lalit Khanna
    Investor · Berkeley, CA · Member since 2021 · 2 posts · 0 votes
    5y

    @Shivam Patel dude don't confuse yourself. If you have 75% LTV call go mortgage they will do very nice financing for you with probably about 1 point in loan cost. Interest rate will be same at residential. I did it just two months ago for my investment property.

    0Reply
  • Shivam Patel
    OP
    Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
    5y

    @Lalit Khanna

    Hey I was curious how do points work?

    0Reply
  • David Lao
    Real Estate Agent · Oakland, CA · Member since 2017 · 60 posts · 25 votes
    5y
    I'm not sure exactly where people are getting the info that you only need to put 20% down for a conventional loan when buying a 4-plex. My understanding is that 25% down is needed. Here's my reference: https://singlefamily.fanniemae.... The loan officer from Caliber Home Loans who helped me with the purchase also told me that as well.

    Shivam, yes, my payment would have been lower without the MIP.  In my case, the difference between the FHA and conv. loan would have been ~7%, which at my 1.1 M price point is almost 100K that I would have tied up in equity. It was also money that I wanted to use to rehab the unit that I am staying in, and also as a buffer if I lose my main source of income. I ended up modeling the scenario in which I reinvested the 100K that I did not have tied up in equity at a modest 4% interest per year and found that it made sense in my situation to take out the FHA loan with 82% LTV with an FHA loan at 2.25% (+1.00% MIP) instead of 75% LTV with a conventional loan at 2.75% -- (FYI: 0 points in both cases).

     
    Originally posted by @Shivam Patel:

    @David Lao

    Wow you got an amazing rate! That's the lowest I've heard of so far, that's amazing. I'm curious, Why was it more advantageous for you do fha 82% LTV vs conventional 80%. Wouldn't your payment be significantly lower without MIP?

    0Reply
  • David Lao
    Real Estate Agent · Oakland, CA · Member since 2017 · 60 posts · 25 votes
    5y
    A point is equal to 1% of the borrowed loan amount, so each point of a 100K loan is 1K. Lenders make money off interest that they charge, but are willing to decrease your interest rate if you are willing to pay them some money upfront (the "points"). My understanding is that lenders have a matrix that they use to to determine how much the interest would decrease by based on how many points you pay. Buyers can also access a matrix to determine a break-even point in which it makes sense to pay the points -- it depends a lot on how long the borrower plans to hold onto the property and how much the interest rate decreases. Sometimes it makes sense, and sometimes it does not. You can model it on a spreadsheet based on the info the lender says, or you can rely the shortcut of looking for a table online, but it might not be fully accurate. 

    Originally posted by @Shivam Patel:

    @Lalit Khanna

    Hey I was curious how do points work?

    1Reply
  • Shivam Patel
    OP
    Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
    5y

    @David Lao

    Ahh yes 75%* I forgot for non primary. Hmm learned something new about points. I don't fully understand the matrix that you're saying. Are basically saying like you can figure out the perfect points you should pay to get best interest from a spreadsheet matrix online?

    0Reply
  • Tim Hall
    Flipper/Rehabber · Tallahassee, FL · Member since 2014 · 462 posts · 237 votes
    5y

    @Shivam Patel the only thing you have to worry about now, is what’s happening right now. Right now you are living in the property and you probably have homestead on the property too. The loan officer shouldn’t be taking your dreams of the future as if they are reality today. Personally I’d find a more seasoned loan office that works for you and doesn’t put the fear of god into you every time you visit them. Thanks and good luck.

    1Reply
  • Shivam Patel
    OP
    Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
    5y

    @Tim Hall

    haha I felt the fear of god for a minute. yeah I do need to work on developing a solid team. Thanks Tim!

    0Reply
  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    5y

    If you want to refi as your primary residence (5%) down, then you will need to live there for another year.

    0Reply
  • David Lao
    Real Estate Agent · Oakland, CA · Member since 2017 · 60 posts · 25 votes
    5y
    Originally posted by @Shivam Patel:

    @David Lao

    Ahh yes 75%* I forgot for non primary. Hmm learned something new about points. I don't fully understand the matrix that you're saying. Are basically saying like you can figure out the perfect points you should pay to get best interest from a spreadsheet matrix online?

     Very simply, yes. There are tables out there that can guide you on the number of years it would take you to break even from the additional points (and decreased interest rate) that you choose to pay when taking out the loan. 

    1Reply
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