Boston, MA Lending - Tenants Remain in Place Jan 2023
Good afternoon BP!
I am currently in search of my third property and currently found a property that has tenants in place until the end of January 2023.
Its a Multifamily (2 fam) that I intend to move into once of those tenants leaves. The other tenant I intend to adjust the rents towards a stronger market rate but what sort of strategies do I have towards a loan? Is this a convential path? Investment?
Interested to hear from the specialists!
Thanks in Advance!
Hi Chris,
Unfortunately, this would have to be done investment at first, and then if it makes sense to refinance, you can refinance as a primary residence once one of the units is vacant and you have occupied the unit. Occupancy fraud is on the rise with the current home prices and rates rising, because people want the lower rate for primary residence and lower down payment with the inflated home values. So, lending guidelines have become more strict to avoid occupancy fraud, especially with multi-family properties. One of the main items that we have to show, is that at least one unit is vacant prior to Closing.
One thing you could do, is ensure the Closing is within 60 days of the lease ending, and do a Use & Occupancy Agreement in the Purchase and Sale Agreement. However, for primary residences, you have to occupy the property within 60 days of Closing, so if lease ends 1/31/23, you could Close 11/30/22 with a 60-day U&O agreement. Bit of a sticky situation, I would get with your realtor, lender, and attorney to discuss a U&O option if you were to go that route.
Hope this helps!
Regards,
Ashley
Awesome update Ashley and much appreciated on the quick response!
When you are referencing the single unit needing to be vacant prior to closing - that is what complies with the conventional loan financing and would make me avoid the investment financing?
I am just making sure I understand!
My partner bought a triplex in Denver that had leases for 6+ months post closing, but she needed to owner occupy for mortgage purposes. In the end she ended up paying $5,000 extra to have one unit delivered vacant, which the owner then paid directly to the tenant.
The mileage from this strategy may vary by location and I personally am not a huge fan of dislocating tenants, but it could be an option.
Hi Chris,
Yes! If at least one unit is delivered vacant prior to Closing or there is evidence it will be vacant within 60 days of Closing (allowing you to move in within the 60-day window of Closing allowed for mortgages), then you would be eligible to do primary residence conventional financing versus investment property conventional financing. Conventional financing allows for both investment properties and primary residence properties, but primary residence financing has lower down payment requirements and typically lower interest rates and lower mortgage insurance!
Investment properties are allowed with conventional, but have steep down payment requirements and the rates are usually worse. They also are restricted to no more than 4 units and all units have to be residential...there are some programs that allow for a fraction of the property to be commercial, but I have never come across a property with mixed use that qualifies because usually the commercial space is greater than the residential which makes it ineligible. So any investment property with 5 units or more, or a ton of commercial space, would need to be a commercial loan instead of a conventional residential loan.
Hope this helps!
Regards,
Ashley