Second owner occupied loan

32 Replies

So we bought a 4 unit as FHA owner occupied feb.2017 and just refinanced to conventional last month as owner occupied. Now my question is how long do we have to stay in the property before we can purchase another one as owner occupied? We hear different answers and are not sure. If we have a family change such as (a baby) will that warrant buying another property that may be have more bedrooms? Or do we have to wait another year before we can make another purchase.

It’s usually 1 year. Not a grey area. If you don’t do that you can be committing fraud

I would guess that if you moved out before the year, and they called you on it, you would have to provide compelling evidence as to why you did not comply with the terms of the mortgage. You could ask them what circumstances would warrant the ability to move out early.
Originally posted by @Remone Randolph :

Jason DiClemente well it says we have the “intent” on occupying for 1 year. Just seems to be a gray area there.

 The general interpretation is that if you have to move in less than a year due to something you couldn't have "reasonably foreseen," you're fine. 

- Mom came down with brain cancer, I need to be near her for her final months, so I had my job transfer me to the branch near her for these final months and I moved. <--- you're in the clear.

- I want to acquire additional properties for investment purposes, and turn this one into a rental. <--- not in the clear.

Anything in the gray area between those two things, I'd suggest getting a legal opinion. 

Ok it was unclear to us because we’ve already been here for 18 months and have heard conflicting responses. But I could see needing a “unforeseen” reason to leave earlier than a year

Originally posted by @Remone Randolph :

Ok it was unclear to us because we’ve already been here for 18 months and have heard conflicting responses. But I could see needing a “unforeseen” reason to leave earlier than a year

 It is not how long you lived there, but how long since the loan. The new loan has been 1 month. It takes 9 months to have a baby, so is there a reason you can't stay there another 11 months? Just talk to your lender and explain what is going on. 

Your new conventional loan also requires you to live there for 12 months post close? I don't like this at all. The idea of FHA to conventional loan is so you can move out, house hack with FHA again, and repeat. Now, I think "fraud" is a little harsh if you move out. How can they prove that? However, they could call in the full amount of the loan.

@Anthony Wick that’s what I don’t get with this whole house hack every year. It doesn’t seem right if you wait a year to refinance out of fha to conventional taking the cash out you invested (which we did) then you have to wait another year after refinancing just to buy another property?? There’s something I’m missing because I don’t recall that being in the brrrr strategy.

Originally posted by @Remone Randolph :

Joe Splitrock it’s not that we can’t stay here another 11 months it’s just doing this brrrr strategy I don’t recall it being every 2 years that you can buy another property.

you're only limited if you want to keep using FHA loans, because you can only hold 2 under certain circumstances. They are intended for first time homebuyers, not real estate investors. We are just taking advantage of a useful tool. If you begin with an FHA loan, you should then try to save up for 20% down payment on the next property. If you can do that in 1 year, you do not need to refinance out of your FHA loan.

I don't believe the BRRRR strategy was intended to be something used with FHA loans.

@Andrew B. well that was how it was understood and I haven’t seen any post saying otherwise. But I think either way it works the same. So let’s say we bought our first property with conventional 5% down owner occupied. We would have to live there for a year correct? Then refinance as owner occupied, since you would get a higher LTV and at that point you have a new loan saying you “intend” on staying there (again) for at 12 months. So I don’t see how not using fha would change anything. It seems the brrrr method and “house hacking” does work well together but not as an every year strategy. At some point I must have misunderstood

Originally posted by @Remone Randolph :

Andrew Boettcher well that was how it was understood and I haven't seen any post saying otherwise. But I think either way it works the same. So let's say we bought our first property with conventional 5% down owner occupied. We would have to live there for a year correct? Then refinance as owner occupied, since you would get a higher LTV and at that point you have a new loan saying you "intend" on staying there (again) for at 12 months. So I don't see how not using fha would change anything. It seems the brrrr method and "house hacking" does work well together but not as an every year strategy. At some point I must have misunderstood

 You do not have to wait a year before your initial cash out refinance. You only have to comply with your banks seasoning periods. This can be 6+ months from big banks, but I have heard of others who have good relations with local banks and can cash out refinance with minimal seasoning. The initial loans say you have to live there 1 year, it does not say you cant refinance before 1 year.

For sure, BRRRR is not the quickest approach, due to lending rules and requirements.

"Other reasons an exception may be approved include increases in family size, or a borrower who is vacating a jointly owned property. In all circumstances that qualify, the application for the new FHA loan is processed on a case-by-case basis, so a borrower will need to work with his or her participating FHA lender to see what is possible. There's nothing wrong with running your circumstances past a loan officer to see what that financial institution might be willing to do.

https://www.fha.com/fha_article?id=574

Originally posted by @Remone Randolph :

Joe Splitrock it’s not that we can’t stay here another 11 months it’s just doing this brrrr strategy I don’t recall it being every 2 years that you can buy another property.

Since your intent was to BRRRR and move out in less than a year, then you should have taken a non-owner occupied conventional mortgage. You signed an agreement stating it was owner occupied and planned to live there a year and as a result you got a lower interest rate. These programs are meant to incentivize home ownership. Just buy your next property non-owner occupied. You don't need to live in a property to get a loan on it, just to get a lower interest rate.

The BP podcasts and posts 100% state to FHA for lowest down payment, live there 1 year, then refinance (because you have forced equity after rehab) original loan to conventional, and then do another FHA (because you can only have 1 at a time since it is for your main residence), then buy another multi family with FHA and move in for another year. No, it isn't the fastest way, but it has been stated many time it is the cheapest way (out of pocket). BP has 100% stated you can do this once a year. If one of our moderators or Brandon or founding father Josh Dorkin would like to clarify this, I'd be happy to hear it. Nowhere have I ever read, in thousands of articles and posts, that you'll end up refinancing and staying 2 full years in the original property. But then again, I may have missed this important point.

Don't know if I have any more information than anyone else as a mod, but I think you have it correct. One year from when you get the FHA loan.

Originally posted by @Anthony Wick :

The BP podcasts and posts 100% state to FHA for lowest down payment, live there 1 year, then refinance (because you have forced equity after rehab) original loan to conventional, and then do another FHA (because you can only have 1 at a time since it is for your main residence), then buy another multi family with FHA and move in for another year. No, it isn't the fastest way, but it has been stated many time it is the cheapest way (out of pocket). BP has 100% stated you can do this once a year. If one of our moderators or Brandon or founding father Josh Dorkin would like to clarify this, I'd be happy to hear it. Nowhere have I ever read, in thousands of articles and posts, that you'll end up refinancing and staying 2 full years in the original property. But then again, I may have missed this important point.

I don't think that only FHA loans have owner occupied requirements. If you get a conventional mortgage using owner occupied rates, then you also need to occupy. For example, I have multiple conventional mortgages, but they are all non-owner occupied. As a result, I pay higher interest rate. The OP took out a conventional as owner occupied, so doesn't that reset the clock and require him to live there another year? So nobody is saying it is 2 years for FHA, but rather another year for the owner occupied conventional since he refinanced.

Let's see if I have all this straight.....

Yes, FHA requires 1 year of living in residence. I have one of those. That's not at question. But, it appears there COULD be a requirement, if you refinance to a conventional, to live there 12 months from close. This is a guess here, but, it seems it is completely dependent on what the lender docs say. I have talked with a local bank about refinancing FHA loan (once I get to the 80% LTV), and I do not believe residency will be a requirement. So again, it appears in this particular case of the original poster, his conventional loan docs state he must "intend" to live there 12 months from close. It seems to be something to really pay attention to when you are looking to refinance out of that FHA and into a conventional loan. Shop around and make sure the residency requirement is not a part of the loan (conventional, not FHA)????

BRRRs are not intended to be owner occupied loans. That's where you're getting hung up. You get non-owner occupied loans so you can move quickly into the next deal. The terms aren't as good, but you can scale

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