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.

Thanks!

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...

Colin Smith, Real Estate Agent in CO (#ER.100052152)
719-232-6709

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, Real Estate Agent in IN (#RB15001099)
800-347-9296

@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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