Dilemma. Please help.

10 Replies

I’m in the process of purchasing a fully occupied duplex.

2 beds 2 bath on both units.

FHA loan with 3.5% down with intent of moving in after one of the tenants lease ends.

If I change my mind and want to keep it as a rental when the lease ends, can I get in trouble for that since u need a lot more down payment for rental properties.

@Michael Acheampong I do believe you have to line it for a few years. Not sure how many, but could be from 3-7 years. Make sure you understand the consequences if you don't abide by the bilaws governed by FHA to insure you stay out of trouble

That would be a good question for your loan officer. Your mortgage lending company will have those terms written in the contract you sign at closing and somewhere in all those papers there will be information pertaining to occupancy. 

I'm not an expert in FHA loans, but my understanding is:

- you have to move in within 60/90 days.

- if both apartments are leased, that’s your issue to resolve. The mortgage might not close if one of them isn’t vacant.

- you need to PLAN on living there at least 2 years. There’s some gray area about things that might be legitimate to allow you to move out before then... but if it’s just to rent, that’s not allowed. Usually a change in job location - that kind of thing is acceptable.

Make sure you understand what you’re signing. Your mortgage consultant can help - but some have been known to sweep certain things under the rug to get the deal closed. Remember, they aren’t the ones signing the docs.

Good luck!

FHA you usually have 60-90 days to move in so make sure something is going vacant and you aren't going to change your mind on living there. You just have to choose and inform one of the tenants they need to move in accordance with their lease (60 days notice of non-renewal usually). better yet ask they deliver one unit vacant. FHA usually they want evidence you will move in and sometimes they will verify. Talk to your loan officer but this isn't usually a requirement you can skirt.

You may have to offer cash for keys to a tenant if they're in a tenants-rights state and the lease isn't ending soon. Also, a lot of investors do 1 year for typical Fannie/Freddie loans but FHA rules can get hairy. I 100% advise you to ask your lender and potentially an attorney to avoid any issues if they verify and you're not in it (try not to scam the government; I heard they're not big fans if they getcha).

@Michael Acheampong The 3.5% down is for owner occupied. You will be committing federal mortgage fraud. Alas all is not lost, you will have accommodation for up to 30 years and it will only cost $1,000,000 for the privilege of staying in nearest federal pokey. The only bummer you will not get to sell your cell.

@Michael Acheampong FHA requires occupancy within 60 days and to maintain occupancy for 1 year, after that you are free to do as you wish with the property including turning it into a rental. The loan paperwork will require you to sign an occupancy agreement indicating you will comply with these requirements.



https://www.hud.gov/sites/documents/4155-1_4_SECB.PDF

@Michael Acheampong , it is the same 1 year residency requirement for any owner occupied financing, with the rare exception if the lender you are using has some odd overlay (lending rule) that the are adding to the mortgage but that should be less then 1% chance but worth asking your loan originator about before committing to a specific lender. 

The nice part of the OO strategy, if you don't mind moving every year or so, is that you can acquire a property with 3.5-5% downpayment, live in it for a year then convert it to a rental and do it again and again with with no limits other then the 10 personal mortgages limit imposed by the Feds.