Buying your own investment property as owner-occupied?

Question

To buy my own investment property, I understand I will have to live at the property for at least a year. Here's the problem: qualifying could be tricky. I live and work in California, where I have a solid work history. How will lenders interpret using my current job to qualify for the loan but having to leave that job to occupy the house?

Amy Turnbull · Answer

Sorry about your losses in Butte County. Thanks for replying here. I live in Los Angeles. The property is in New England--Western Massachusetts.

Amy Turnbull · Answer

Stephanie, thanks for checking on this. My research for a Homestyle Fannie Mae loan turns up a different ownership scenario: owner-occupied, 1-4 units and investor, 1 unit. I cannot for the life of me understand the reasoning behind this. I don't know many owners who live in and rent 1-4 units; what does that even look like? A quadraplex? Like I said in another comment, I think Fannie Mae got this backwards! It's really a shame because the code where I own my investment property does not have an owner-occupancy restriction to permit an ADU--as it should be if a town wants to increase the supply of housing! I can rent out both the primary dwelling and the ADU and remain here in California until I'm ready to retire. This will create two units of rental housing where now there is only one.

It looks like I'll have to go the investor route since I do need the rental income to qualify! Also, not sure changing jobs is a good idea just to save points on a loan. However, I won't be able to apply for lending for the ADU through Fannie Mae as an investor because of the unit issue listed above. I'll probably have to go with an investment refinance construction loan through a local bank and pay the higher interest rate.

While I'm still in the research phase, I'm going to try to reach out to Fannie Mae directly!

Stephanie Medellin · Answer

@Amy Turnbull  I sent you a PM yesterday, but I just got clarification from the lender.  Unfortunately that is correct - they will only allow building an ADU on a 1-unit owner occupied property.  :(

Amy Turnbull · Answer

@Dylan Vargas I think I'll try the commercial lending route first over hard money--see what interest rate I get.

Dylan Vargas · Answer

@Amy Turnbull Thank you for your thoughts! Would hard/private money be worth it to solve the issue? Just throwing it out there.

Amy Turnbull · Answer

Thanks, Stephanie

According to one of the local Homestyle lenders, an accessory dwelling unit aka ADU aka guest house does NOT qualify as a one unit dwelling if the home is an investment property. However, as an owner-occupied refi construction loan, I can have 1-4 units ( which I think is totally backwards!) ADUs are still fairly new on the east coast so there's no precedent for this kind of thing that I can find i.e. using a Homestyle loan as an investor to build a new, detached ADU.

The downside of the investor choice is I can't legally live on the property unless I disclose this to my lender.

Stephanie Medellin · Answer

@Amy Turnbull  i would just buy it as an investment property or even a second home.  A second home will allow a higher LTV, but you won't be able to count any rental income to help you qualify, although from your post it doesn't seem like that's an issue.

Homestyle is available for 1 unit second homes and investment properties.  As far as I know, an ADU would still be considered a 1-unit property.  Just because you're building it new shouldn't change how it's classified for loan purposes.

Here it is on Fannie Mae's website - https://www.fanniemae.com/content/faq/homestyle-re...

Amy Turnbull · Answer

Hi, Marc

Thanks for responding. I'm looking for a better rate! I bought the house for my retirement. In the meantime, it has a pretty good rental history. I want to build a guest house on the property. I can either do a commercial refi construction loan, which comes with a hefty interest rate, or relocate now and apply for a Homestyle loan for the same kind of loan. Building now will raise the value of my house--I may not be able to refinance it on a fixed income in a few, short years. The downside of applying for a loan as owner-occupied is, of course, I loose the income to help me qualify. It's a conundrum! And then, of course, there's the issue of income. Changing jobs is not ideal when applying to buy a house--thanks for your thought-provoking questions!

Wayne

I need to live somewhere! My idea is to occupy the guest house which I will build using a refi construction loan.

Marc Winter · Answer

Amy, if it is an 'investment property', it is not your primary residence.  Are you moving to the new property?  Does your current employer have a branch office near your new home?  do you have a new job offer from a company in the same industry (in writing)? Will you be leasing out your existing home to cover the existing mortgage?  Or are you just looking for a better rate--owner occupied vs income/investment property?

Lenders will look at all of the above questions.

Wayne Brooks · Answer

You’ll generally need a new job, where the house is you’re going to occupy.  You already own it, why do you want to “buy it as your primary”? No tax advantages to it.  Even if you owned it in some entity, it wouldn’t be arms length, and would be difficult even with a new job I believe.