Houston, TX · Member since 2019 · 21 posts · 4 votes
Hi all,
I'm new to BP and recently purchased an owner-occupied home. It is my understanding that I have to live in the house for one year before I can rent out the whole house. My question then is:
After the year is up, can I go and buy another owner-occupied home for a low down-payment? If so, how many times can I do that before I absolutely have to use a rental property loan? Has anyone done this and how did it workout? And are there any downsides to this?
I have found some older posts about this but kind of general, would be great if anything with first-hand experience could share.
@Juan Abreu My GUESS is you can buy a new owner occupied property after fulfilling the requirement to live there at lease a year. However you may have trouble qualifying as you will have two mortgages. @Chris Mason comments?
Convert the old one to a rental to offset the payment and make DTI work. Yes, that rental income can "count" if the lender in question wishes to allow it to "count."
Primary residences aren't subject to the FNMA cap of 10. So, in theory, 500 SFR primary residences that owner occ'd for a year each before converting to a rental, never put more than 5% down.
I have clients that call me every 12 point fiddy months to buy their next house.
If I'm not mistaken and I very well could be, you can only have one property where you can take advantage of the 3.5-5% down via FHA at any given time. If you wait a year and rent the property out, you'd still own that property, which I think would disqualify you for the owner-occupant status. If you sold the property, then you'd be back in the game to take advantage of the owner-occupant benefits.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
6y
@Juan Abreu My GUESS is you can buy a new owner occupied property after fulfilling the requirement to live there at lease a year. However you may have trouble qualifying as you will have two mortgages. @Chris Mason comments?
@Juan Abreu My GUESS is you can buy a new owner occupied property after fulfilling the requirement to live there at lease a year. However you may have trouble qualifying as you will have two mortgages. @Chris Mason comments?
Convert the old one to a rental to offset the payment and make DTI work. Yes, that rental income can "count" if the lender in question wishes to allow it to "count."
Primary residences aren't subject to the FNMA cap of 10. So, in theory, 500 SFR primary residences that owner occ'd for a year each before converting to a rental, never put more than 5% down.
I have clients that call me every 12 point fiddy months to buy their next house.
I'm new to BP and recently purchased an owner-occupied home. It is my understanding that I have to live in the house for one year before I can rent out the whole house. My question then is:
After the year is up, can I go and buy another owner-occupied home for a low down-payment? If so, how many times can I do that before I absolutely have to use a rental property loan? Has anyone done this and how did it workout? And are there any downsides to this?
I have found some older posts about this but kind of general, would be great if anything with first-hand experience could share.
Thank you for the help!
Juan
My understanding is that if you don't live there for at least 2 of the previous 5 years when you sell, you are giving Uncle Sam a heckova lot in taxes. Very generous of you!
Realtor · Denver, CO · Member since 2016 · 278 posts · 371 votes
6y
@Chris Mason Do you have any clients that have moved more than 10 times to get that primary residence financing advantage? Does it become a problem with the underwriter if they see someone move every year?
Thanks so much for the reply, that's exactly what I wanted to know. And is this something that is frowned upon by lenders or is it okay for me to tell my lender that this is what I intend on doing?
@Account Closed
My goal is to buy and hold these properties long-term and rent them out, so not really concerned about that but thanks for the info.
Rental Property Investor · West Fargo, ND · Member since 2015 · 94 posts · 51 votes
6y
@Juan Abreu
My experience has been:
Purchased in 2009 with FHA owner occupied
Fefi in 2017 to conventional owner occupied
(Intended on loving there another year but didn't end up doing that)
2017 Used a new FHA to purchase a 4 Plex
2018 (1.5 years after purchase) I bought a house to live in permanently.
In essence I have done 3 owner occupied loans in about 4 years. 2 of which were conventional, only 1 was FHA because you can only have 1 FHA loan at a time (most of the time, exceptions can happen).
My guess is that I could keep doing this but I haven't confirmed with my banks, at least not on the owner occupied side.
@Chris Mason Do you have any clients that have moved more than 10 times to get that primary residence financing advantage? Does it become a problem with the underwriter if they see someone move every year?
Q1) Nope, b/c I haven't been doing this for >10 years. :) And you'd probably have to be doing this more like 15 years to tick that box, since sometimes "life happens" and someone isn't ready to move just b/c 12 months and a day have passed.
Q2) Not a problem when they see that you move, if you lived there for 12 months and a day, then you upheld your promise. What they are looking for is promise-breakers, IE once in a while someone calls me to buy their third "primary residence" in a year, always with some "excuse" like "the neighbors smell when they cook" for why they - yet again - can't fulfill their 1 year promise. That's a no go.
@Chris Mason do you need to refinance the FHA loan into a traditional to requalify for FHA?
Beyond property #1, FHA isn't a model match for landlords in various ways. If you want to use FHA for #1 go for it, after that I strongly suggest sticking to FNMA conventional offerings, where 5% down gets you in the door for a SFR.
Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
6y
@Mike M. You are correct but capitol gain taxes can be avoided by using a 1031. Also if you use an irr calculator you can figure your optimum time to sell. It makes little sense to hold past a certain equity point. One exception is arguable but that would be if you were using the CF as retirement income. I’m in this boat and fight with myself everyday. More leverage better growth vs more equity which equals better security and more cash flow per property but lower cash flow per dollar invested. RR
Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
6y
Also one thing I’m not seeing addressed here is the difficulty in finding 10 or more properties that will cash flow at 5% down. I’d love to find just one.
Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
6y
@Juan Abreu you’re playing with fire for owner occupied properties for use with rentals because if you apply for the homestead discount (reduction in taxable value of your home) for Ooc homes loans look for that sort of thing and can deny you based on that. You’re only allowed on OOC property as your primary. It’s up to you on how long you can get away with it but loans are getting smarter with this sort of thing
Do you have VA benefits from military service? If you do, you can have more than 1 loan at a time as long as the total mortgage is less than 400K. Our starter home was bought for 100K and for the last 3 years it has been rented. Then last year we bought another home for 210K and they were both VA loans. This summer we did a cash-out refinance out of the VA loan on the starter home and last week we refinanced the 2nd house out of VA. I'm now looking for a 4-plex with the VA loan again and we simply have to live in one of the units for a year.
That's a great point! I was just thinking about it from the point of making my capital go longer but yes, finding those rentals that cashflow at 5% might be difficult
Houston, TX · Member since 2019 · 21 posts · 4 votes
6y
@Jonathan Taylor I understand, I would only have one primary residence at once.
@Julie Dillon Yes, from my military service. That's good to know, I've read about it but never met anyone who has done it. Glad to hear it is possible, thanks!
Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
6y
@Juan Abreu play by the rules. Your not thinking about any strategy here that a hundred other people or more haven’t thought about. Successful investing is a life style not a gimmick. Looking at a strategy like this is a waste of time. Figuring out how to make 1or 2 investments pay is time better spent. RR
Since you're prior military, I'd recommend you follow and make a connection with David Pere. He has a lot to share about veterans and growing your real estate portfolio.
@Juan Abreu in my area this is how my refinance lender explained to me.
1.) Fulfill your year obligations.
2.) Refinance to conventional mortgage or sell and use 1031.
3.) Get a rental agreement for residents to off set DTI.
4.) Find property, some cases you need a reason, i.e. relocating for work, out grew current home, going smaller from multi family to single family, moving to a better school district.
Again this is how it was explained to me by my mortgage broker in Connecticut. It could be different in other locations or I was misinformed. I believe your max would be 10 in 10 years. You can only have one at a time.