Being Told New House is Too Close to Current House

[Jake Collins]

Hey all,

My lender is now telling me the branch manager is getting cold feet about taking my loan because we are moving "too close" to the current home. For background, we have lived in this house for a full year. We would be moving down the road (same street name, but a five minute drive). The lender is saying they want me to provide an explanation for why we are moving or even list my house for sale. It was my understanding that after a year I can move for pretty much any reason I want and keep the old house as a rental. Am I missing something? Has anyone else ever run into this?

[Kevin Sobilo]

@Jake Collins, the underwriter is likely looking at your debt to income ratios and concerned about you carrying 2 houses.

Since they are asking why you are moving, I'm guessing you didn't say that you plan to rent the old house. They need to know that so they understand you don't plan to own and pay mortgages on both houses on your existing income alone.

[Jake Collins]

Hey Kevin, 

Thanks for the reply! Unfortunately, that is not it because they are well aware of my plans to rent the old house and also cleared me from a DTI standpoint. Which makes this ever more strange.

[Bruce Woodruff]

Try another lender?

[Mike Singer]

Hi Jake, 

I spent several years as an underwriter. I assume you are trying to claim the new one as your Primary so the financing terms are better. The deal needs to make sense if you are claiming the new one as a primary residence. If it is similar or smaller they need to justify why you would move from your current home to this one. 

The underwriter is concerned with occupancy fraud. Basically, they want to you to document that this is truly the home you would live in and not just rent it out with Primary loan terms. You can use several explanations to support your claim (Closer to kids school, more bedrooms, etc). They just want a reason. 

[Jake Collins]

Hey Mike,

Thanks so much for the info. Yes, it would be our new primary and we will be living there full time. I suppose that makes sense. Our main reason is our previous house will do so well as a rental. But there are reasons we like this house comparatively as well. I can certainly supply some.

[Jeet Sangha]

In their minds, you can be buying it as an investment with a primary loan. If you are moving because the family is growing and you need more space, a better school district or a work-related move then that's a compelling argument. If both houses are very similar in size and amenities then they will for sure question it.

[Mike Singer]

Quote from @Jake Collins:

Hey Mike,

Thanks so much for the info. Yes, it would be our new primary and we will be living there full time. I suppose that makes sense. Our main reason is our previous house will do so well as a rental. But there are reasons we like this house comparatively as well. I can certainly supply some.

They just want a solid explanation of why you want to move there to document their file. In their mind you could just buy this place and rent it out after telling them you plan to live there. Its fairly common to ask this if the home is within 100 miles and similar. FHA actually doesn't even allow financing if the home is within 100 miles of the old one.

[Foti Karastamatis]

Give them the real reason you are moving and if they don't like it, switch lenders. They either want your business or they don't. I quit begging people to take my money and it feels way better. They need you more than you need them. There are hundreds of lenders, brokers, credit unions, even hard money... that's really not that hard compared to todays interest rates. Use hard money to seal the deal the refi a few months after you move in. If the deal is worth doing, hard money can get it done. Would you lose a deal over a few thousand dollars? If so, maybe its not the right deal. Hard money can be the difference of making the deal or not. Just my humble opinion. Best of luck and let us know what happens.