First rental purchase as primary?

Question

Hey guys and gals, I am looking at buying a property and started talking with lenders. One guy talked to me about considering it a Primary instead of investment for a less costly loan. He was saying they would do that. What are the pitfalls of that?

Tommy Nguyen · Answer

Most likely, your lender has a variety of options regarding financing. In most cases, primary residence loans have more favorable financing rates because lenders believe consumers have more vested in the property in comparison to an investment property. However, you can get the best of both worlds!

There are programs for owner-occupied loans with low down payments, such as the FHA loan. As @Brady Ferguson referenced "house-hacking" is when you live in one unit and allow the other tenants to pay for the mortgage and expenses. It's a fantastic way to begin your real estate journey!

Brady Ferguson · Answer

Your lender may have been inferring that you consider a house hack, that is the only scenario where It would make sense to use a primary on an investment property

Dustin Wells · Answer

I figured so. Why would the lender be offering this?

Eliott Elias · Answer

You can not use a primary residence loan to fund an investment property. You may move out if your circumstances ever change, but it is mortgage fraud to use this loan to fund rental property.

Edward Dean · Answer

The pros are that you can usually get better terms and use a lower down payment if you are buying a property as your primary residence and using a loan to do it versus a loan for an investment property you do not intend to occupy. Speak to the lender about what requirements there are for occupying the property. Usually there is a requirement that you intend to occupy the home for some period of time which depending on what you intend to do could be your main con for using that product. Every lender is different and there are many different loan programs out there so make sure you are clear with what you intend to do and speak to your lender to see if this loan program will work with your long term goals.

Best of luck with it.