BUYING A DUPLEX WITH INTENTIONS OF OWNER OCCUPY LOAN

24 Replies

I am wondering if I were to buy a duplex with a conventional "owner occupy 1-4 family" loan, and I do not end up moving in but instead I rent the unit out, what would the ramifications be if any?

Can they call the loan?

Thank you in advance,

Kyle Murray

Yes, if they find out, they can call the loan. Usually OO loan requires you to live there at least 2 years, at least, that's the mortgages I got.

I don't know how they check. But one co-worker told me that someone came to their home once, and turned out they're checking for the bank who lives there. The guy was checking the mailboxes. Whether it's a common thing or not I don't know. My next door neighbor is a state auditor for the NY state tax department. His job is to find out who claims to live out of state but actually lives here in NY where taxes are higher, and people don't pay the taxes. He says he get tips from a hot-line and then checks where the person goes to use the ATM, shopping etc. via bank and credit card records.

I also heard of cases where unfriendly neighbors actually turn you in to the bank for getting the wrong type of loan. In one case, the tenants the landlord rented to apparently has a food truck, gets up early every day and makes a racket. It was also smelly. They checked into who owns the place, has a mortgage, a find out it's a OO loan, and the owner doesn't even live there. Bad tenants usually gets absentee landlords in trouble, and I guess enough absentee landlords do this, get OO loans, so that's the first thing people check on. The owner was on some real estate forum asking what he should do. People advised him to move to the smelly apartment neighbors were complaining about.

@Kyle Murray Yes they can call the loan and get you for mortgage fraud. I bought a triplex with the agreement that I would live there for one year. After living there for two months the lender requested to see my most recent utility bill. Now with that said, if you buy it with the intention of moving in and something changes, (job location, sick family member you want to be closer to) you can move out with their approval. It’s all about your intention. Hope this helps! - Mike

@Michael Kistner

@Frank Chin

Thank you both for the reply.

I am just trying to buy this duplex with less then 20 % down. The bank is telling me if I purchase it the only way I can avoid putting 20% down is to move in.

I thought I was able to put less down on a 1-4 family home.

Do either of you know if there is another way? I currently own a 4plex and did the OO thing for 6 years and we just moved into our first home and I really don't want to go down that road again.

Have a great day!

@Kyle Murray Is there potential for forced appreciation? Do you think it’s under priced? If so you could always look into hard money, fix it up and refinance it. It’s a little risky but it’s another way of buying it with little to no money down. - Mike
@Kyle Murray You could structure a seller finance loan with lower than 20% if the seller was interested. Maybe lower down payment, higher rate.

@Kyle Murray as mentioned it is mortgage fraud.  And you would be admitting it on a public forum so another reason not to do it....

Also - if you just purchased a home you will have to explain to your lender why you are going to move to a duplex... Pretending to move into a cheaper, smaller, and similar location home will not pass underwriting... Last - not sure what your DTI is but most people would find it hard to pass DTI if you had 2 personal mortgage payments... Would have to commit another level of fraud to pretend to rent your current primary to pass DTI calc....

Don't do it.

@John Woodrich Can you expand on the two personal mortgage affecting DTI? If one was refi to an investment loan, wouldn't it affect DTI the same?
Originally posted by @James Clements:
@John Woodrich Can you expand on the two personal mortgage affecting DTI? If one was refi to an investment loan, wouldn't it affect DTI the same?

Simple.  Lets say his current mortgage is $1300, his income is $4500, and his new "personal" duplex mortgage is $1300.

Current DTI = 1300/4500 = 29% DTI with the new loan will be 2600/4500 = 58% (FAIL)

Unless he rent's his current place his DTI will have 2 mortgages. But, he doesn't intend to rent his current because he doesn't plan to move out.

He could refi his house to an investment loan however he likely purchased with a low down payment loan so would have to bring cash to close. And he will still have the same DTI problem because he doesn't intend to move out of his current house....

@Jordan Moorhead

@John Woodrich

I am not committing mortgage fraud, nor have I publicly admitted it. I simply asked a hypothetical question of "what if"

I am fairly certain someone has purchased a home with intentions of moving in but life happens.

Mostly I was just curious if there was another way then to OO the duplex and if someone had ever had a conventional mortgage on a 2 unit with less then 20% down.

My Fiancé is the only person on the home loan. I did this to decrease my DTI. I only have one mortgage obligation and that is on my 4 unit apartment building. which has a net profit of 20k per year. I have no other debt ( car, credit cards, or personal loans) besides that.

Thank you all for your input and hopefully my question did not offend anyone.

Kyle Murray

@Kyle Murray I could see this in theory but since your fiancee is on home lone, I don't see why you couldn't try for a low down conventional on a duplex? You'd have her on all utilities at the house. At the duplex, You keep one unit for yourself, all utilities in your name, whether you choose to sleep there or not is personal preference. Would it work in real life, probably not.

@James Clements

Correct she is on all utilities. I could try for the low down payment loan. I just didn't know if I left the unit empty for how long I would have to do something like that. or if I treated it like a second home/vacation home for how long would I need to do that before I could be let off the hook for it being my Primary RES.

Kyle Murray

@Kyle Murray most OO products have a 1 year occupancy requirement.

@James Clements

Thanks James ! Have a great day.

@Frank Chin hey quick question for you. With your loan how do you know its 2years and not 1year for you to occupy? Does it say it somewhere in your loan docs? Reason I ask is I brought this question up in the forum last week and got 98% of people saying it's 1 and not 2. I'm trying to figure out if my oo loan is one year or 2 occupancy.
@Cisco Hood it will be in your closing docs. There should have been a dedicated page you signed noting this.
Originally posted by @Cisco Hood :
@Frank Chin hey quick question for you. With your loan how do you know its 2years and not 1year for you to occupy? Does it say it somewhere in your loan docs? Reason I ask is I brought this question up in the forum last week and got 98% of people saying it's 1 and not 2. I'm trying to figure out if my oo loan is one year or 2 occupancy.

 I checked with my bank officer, and it's also part of the mortgage docs. It's two years back in Apr 1994.

My case was a little special as I bought the triplex with an OO loan in 1983. In Apr 1993, I refinanced with a lower interest OO loan. Then in Aug 1994, bought a duplex at a foreclosure auction and got a portfolio loan. Planned to rent it out, but the place was so much nicer and roomier I decided to move in myself. I rented out my units at the triplex with the OO loan.

So my dilemma was whether my OO status started in 1983, or Apr 1993 under the new OO loan. I checked it out got differing opinions, but some felt I got a new mortgage in Apr 1993 and should start from there. Technically if I move in Apr 1995, it should be OK. To play it safe though, I didn't notify the bank of the change in address till Apr 1995.

I was never sure of the right answer to the above, whether the OO status began under the original loan, in 1983, or the new loan, Apr 1993, so if someone has the right answer, I appreciate it.

@Frank Chin thanks for the reply. That's a nice little story there I'm glad to hear it worked out. So my docs I signed say 1 year but morgtage officer told me it's 2years. I'm not sure why he thinks that. So when I heard you say two years I was wondering you knew something about this 2 year rule.
Originally posted by @Cisco Hood :
@Frank Chin thanks for the reply. That's a nice little story there I'm glad to hear it worked out. So my docs I signed say 1 year but morgtage officer told me it's 2years. I'm not sure why he thinks that. So when I heard you say two years I was wondering you knew something about this 2 year rule.

What is in writing governs. So if you find something in a year, need to move, go for it. But this 2 year OO thing has been around for quite a while, some 30 years, so the mortgage officer may not be aware of the changes, particularly if he's an old timer like me.

@Kyle Murray 20% down? You are lucky. Where I am here in Southern California my lender is telling me for an investment property I need to have 25% down. Add to that the Southern California properties tend to cost an arm and a leg and a few extra fingers, this gets very expensive very rapidly.
@Alvin Sylvain I am doing OO for a duplex in FL with Cardinal Financial and it’s only 15% down. Shop the market!
Originally posted by @Jack Bobeck :
@Alvin Sylvain I am doing OO for a duplex in FL with Cardinal Financial and it’s only 15% down. Shop the market!

 Shopping is always a great idea, but I'm not quite ready to dip into inter-state investing.

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