Getting past Underwriting!! Second home is easier they said :/

13 Replies

So I bought my first home (duplex) using a VA home loan a few months ago. Everything went well and now I'm ready to buy my second home (triplex) but there's a problem, Underwriting!!

I am being told by numerous lenders that I can't purchase a 3 family using an owner occupied FHA or conventional loan at that matter. Instead I need to put 25% down because I am seen as an investor. Despite planning on living in the future triplex they are telling me at best I can get another Duplex, and that will be a stretch that requires some selling to underwriting. After asking why their response is the same "People don't go from a 2 to a 3 instead they go from a 2 to a 2 or a 2 to a single family. Gong from a 2 to a 3 family is seen as unusual and appears that I am trying to be an investor and not put down any money."

How do I get around this hurdle? Has anyone else been told this before? 

My Questions is why/how is this a thing? Is their some rule somewhere that i can reference?  If i want another home  i am being told it has to be a 2 family or a single family, In a "better" neighborhood, 50 miles away from my current home or substantially closer to my job in order for underwriting to even look at it.  It almost seems like their making this up. Im not understanding why it would be so difficult to get an owner occupied loan that i intend to live in when i only have one home. Have you seen this before ?  

Like Amit said, try talking to other lenders, but yes, this is typical of lenders. Most people when truly buying a primary residence, "move up." It's just how things go... otherwise everyone would get nice easy low-down payments on investments and quickly scale up.

Also, if you only moved into your first property a few months ago, isn't it too soon to purchase another primary residence? Typically you need to live in your primary residence for one year before moving out and renting it.

@ Nicole So how do people do it? I was just watching a BP podcast 276 featuring Bryce Stewart where he went from a two family to a three using owner occupied rates. That's just one of the many so i am curious how they do it? and to answer your question they haven't mentioned time but its been 10 mouths since I bought my first home.

BP does a great job of offering  information on the first home and what to do after 6,7,8 homes when lenders wont look at you but their seems to be a gap. How do you get the second  and third home?

Will waiting a year make a difference towards me getting a loan? Is their someplace where i can reference these rules or is it just underwriting making things up ?

Okay, you first said a "few" months, so now that you say it's 10, that's pretty close to a year. So it's probably fine.

I'm not sure what you want to hear. We have already told you how people do it. They talk to other lenders until they find one that works.

And rules can vary lender by lender, so you will have to ask *them* to see such rules in writing if that's what you want. But your time is better spent finding a lender that will work with you rather than arguing with one that doesn't want to work with you. So keep searching and pushing forward!

Ok, Thank you!! I was thinking that theses rules were enforced at the federal level vs just lender rules.

I like your advice on better spending my time looking vs fighting on that note are their any tips on finding lenders? example (Maybe try big banks then local then etc or go out of state) where would be a good place to start?

Thank you in advance and sorry for the back and forth. I guess I was looking for "Yes the same thing happen to me this is what I did." I'm just trying to get a feeler if I was a special snowflake or if others have herd the same thing before. 

Thank you

lol No worries. And yes, we all go through struggles, both big and small. I once had an insurance guy tell me that he couldn't insure properties held by my LLC because I wasn't married to the other member in my LLC. I know that he was obviously wrong, but just moved on and talked to other insurance companies.

I personally recommend smaller local or regional banks typically. But being this is for a primary residence off the bat, you could also go bigger (in my opinion). Don't overshare details. Just simply say that you're shopping around for a primary residence loan on a 3-unit property. I ran across one lender who would only do primary residence loans for single-family units (no 2, 3, or 4 unit properties).

Marc Fin how close are the two properties to each other? If they’re close you may have push back arguing you’re an investor. These rules exist to limit a banks risk, don’t take it personally.

Some bank may do this but it will probably be difficult to find. At some point you’re going to want to get use to putting down 20-25 percent anyways.

I’ve come into this and it was true for me. To use FHA, I had to move smaller and smaller. Triplex, then duplex, then SFH. It’s really stupid but it is a requirement. They want to see you moving to “better” situations and to them, having one neighbor is better then two I guess.
The one workaround that may work, is telling them that your employer moved a bit far away, so your looking to move to that area to be a reasonable distance to work and they may make an exception in that case.

You need to learn what 'rules' you're being told belong to whom

for instance, the "rules" you mentioned are THAT bank's rules. They might talk like those rules apply to you always, but really it's only always when dealing with that bank. The bankers your talking to might not really understand that other banks have different underwriting guidelines.

I'm an underwriter, I promise you the "rules" that banks follow are vastly different for each of us.

Try different banks. Underwriting should get easier because YOU get better, well part of that process is learning more about how underwriting works so you can better navigate the process.

also, I've read your post a few times and it certainly seems like there is some information missing. So it's hard to say exactly what's happening here, but learning more from a wide variety of sources will certainly help clear up any shortcomings.

good luck!

@ Nicole A Thank you for the tips. I will do what you suggested and try sharing less details. I didn’t do this at first for fear of everyone telling me yes yes yes we can help you. Time to go fund the deal and then they say no


@Caleb Heimsoth I am looking in the same city Providence RI so they are very close maybe a 15 mile radius at best. The problem is most multi are in the city.

I always knew I would have to do the 20-25% percent down just didn't expect to do it on the seconds home L. Especially when I am going to be living in the property and have an unused FHA as an option.

@ Alexander Felice Thank You !!! great explanation. I was thinking the rules they had apply to me period. Especially after hearing the same thing 3-4 times. I guess I just have to try another 20 times lol. As an underwriter what would you say is important to them in order for the deal to pass? In your “OPINION” what would you say is some strong cases to justify going from a 2 family to a 3 family? Also what info is missing?

@Marc Fin I was told the same thing when I was looking to use a FHA loan for my second property. I went to a different smaller bank and they didn't even bat an eye at the fact that I was moving in the same city just after a year of buying a three family. Smaller banks will have less strict underwriting rules in my experience. PM me if you'd like to try the bank that gave me the FHA loan for the second.

Lets play out a hypothetical situation.  If you were going to buy a 3 to help defer or lower your monthly expenses and were going to sell your current property once all of the work to the 3 was complete, that could be an argument.  Once you were ready to move into the new 3, family related circumstances may have changed, and it may not be as advantageous to sell the previous property.  Hypothetically of course.