Question about low down payment loans

10 Replies

Hi guys,

I am planning on purchasing my first investment property (also first property ever) very soon. I plan on owner occupying this property for a short period of time, and then quickly buying a second property and turning the first property into a cash flowing rental unit. I have enough money saved to put 3.5, 5, or even 10% down on a loan and I do in fact plan on using the FHA loan if I can qualify. I know that most pure investment properties require 20% down, which I cannot afford at this point.

My question is about the legality issues of purchasing a property using the FHA loan (or a conventional loan with a low down payment). How many years are you supposed to "intend" on owner-occupying this unit to be approved for the loan. Can I "intend" to live in this unit for 3-6 months and then move out, or do I have to "intend" on living in the unit for 2 years? What could happen if I do actually begin renting out the unit before I am technically supposed to?

I am not trying to say that I plan on breaking the law or doing anything illegal, however I would like to know the specifics of the rules when applying for these types of loans which are normally only given to people who plan on owner-occupying.

Basically, I want to have the opportunity to begin making money as soon as possible.


I am not a lender so I can't say this for sure, but I believe FHA wants you to live in the home for at least 1 year.

Agreed.  Also realize, you'll have another 5-6% in closing costs, advance insurance and property taxes, etc. that either you will pay, or negotiate to have the seller pay a part of.

@Colin Smith

What if I were to get a 5% - 10% conventional loan which from what I understand is a pretty common down payment for an owner-occupant?  Am I still expected to live there for a year or are the rules different.

Also, I will be buying in NC if that makes a difference

@Wayne Brooks  Good Point.  There will be closing costs and additional fees. I fully understand that I need more cash than only the amount of the down payment.

1 year is their guideline. How they catch people going FHA then 6 months later moving out... You live in a property and have a regular home owners policy. You move out to your new place and then change the home owners policy to a landlord dwelling policy as now it is not owner occupied. Lender gets updated of the new insurance change and.... Bam, caught.

Again you'll want to ask these questions directly to a lender. I work in CO not NC so I only know my area. However, I do believe that if you are getting owner occupied financing then they do want that 1 year. But again, ask your lender. Also ask, how often FHA will actually check if you're living there...

They make you sign an agreement stating that you will live there for one year. I don't know about you but I wouldn't want to get busted for mortgage fraud. Most places if you are doing less than 20% down are going to want mortgage insurance as well. Honestly why don't you look for a duplex and house hack? If I was starting over that's what I would do. 

@Ryan Dossey

 Duplex + house hack is certainly what I would ideally like to do, however they are hard to come by in my area.  There are some good cashflowing 3 and 4 bedroom condos in my area, however I don't particularly feel like have 3 other roommates in one space.

I messaged you in regard to the marketing-related stuff I had asked about in my post the other day.  I'd love to speak with you more about how to find off-market duplex's.

@Justin Thompson

 Gotcha, thanks.  Hypothetically speaking, What type of repercussions might ensue if caught?

Originally posted by @Keith Nelson :

@Justin Thompson

 Gotcha, thanks.  Hypothetically speaking, What type of repercussions might ensue if caught?

Hypothetically speaking... when you close on a FHA loan you have to sign a document that you will be owner-occupying the property within 60 days of the closing. There are also guidelines stating 1 year minimum you must occupy the residence. If you rented it out in say 6 months after the closing and they caught you, you'd be in violation of the loan. They could do a number of things but more than likely they'd call the loan in or hit you with some kind of civil legal action for mortgage fraud/violation. Not sure exactly how strict they are or what they'd actually do if they caught you. I know an investor locally who was buying HUD homes in the owner occupant only bid time frame. They are going after him for fraud.

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