Primary Residence Loan Requirements - 1 year vs 6 mo - 2nd home

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Primary Residence Loan Requirements - 1 year vs 6 mo - 2nd home

Michael Conrad
Member since 2018 · 7 posts · 1 vote

Hi All,

I am researching the time requirements between purchasing primary residences. I was told over the phone by a local lender in CO that I would be able to buy another home as a primary residence. My wife and I bought our current house as a primary residence and closed in April of this year, 2018. We now just put another house under contract to move into and we have just been told that we don't have sufficient enough reason to buy another primary residence and that it has NOT been a FULL 12 months. From what it sounds, this requirement used to be pretty subjective with underwriting and is now a hard law. Something about Fannie Mae & Freddie Mac restrictions.

I was searching the forums as I always do and came across a post from a few years ago with a similar discussion topic. I saw that several lenders mentioned 6 months for conventional financing and one year for FHA. We bought our first home with 5% down and conventional financing. We are hoping to do the same with this next home. I was curious if this is something that you can still do.

The property is in the same price range as our current home. It is also a little over 1 mile away from our current house. We would rent out our current home and the carriage house in back.

Our current closing date is at the end of January. I guess April is only 60 days out from that; so maybe that could be an option to delay closing if I could make it lucrative for the current seller? Just trying to be creative and solve problems here.

I appreciate your guys' help and would love to be able to follow through on this deal.

Thanks,

Conrad

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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
7y

@Michael Conrad very sorry another lender told you this.  The general rule is going to be 12 months for nearly every situation.  Your occupancy "intent" of the property is usually for 12 months.  So if you intend to secure a property as a primary home you'll need to keep that as your primary for 12 months.  If there is reason to leave your property, there might be some leeway if you have a conventional loan.  For example, if your family grew in size or if your job transferred you further away, a conventional loan might make a case to provide you another loan under this circumstance because it would make sense for to need a new property.  Even after the 12 months you may need to expect to be required a lease on your subject property by some banks for this sort of a reason.  This can be a very "grey" area and you should certainly be interviewing your lender you are prequalified on this for their tollerances.

Also, incase others are researching this same subject there are some very "different" requirements for FHA loans when vacating your primary home and needing another FHA loan on another primary home.  FHA loans do allow you to have 2 loans at the same time with them (not every bank will follow this rule though) but if you need the rental income from the property you are vacating, then you will need 25% equity in that home in order to be able to use the rental income.  Again, not every loan officer/lender knows this rule.  It's really obscure and very rare that it comes into play but maybe this post will help someone in the future.

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  • Jeremy TaggartBusiness Member
    Real Estate Agent · Pittsburgh, PA · Member since 2014 · 850 posts · 647 votes
    7y

    @Michael Conrad I'd check your loan documents you signed. Usually if there is a minimum time requirement to live in the house there will be something you signed saying that you must live there for however long. Also, sometimes lenders are hesitant to lend on another owner occupant loan whenever there isn't a legitimate reason to live in the new place over the old. I house hack a new home every year and every time I am going through the loan process, I have to sign a paper from the lender stating what my reason for moving is. Whether that be needing a bigger house, needing to be closer to work, life changes, etc. Just something to be mindful of. 

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  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    7y

    @Michael Conrad very sorry another lender told you this.  The general rule is going to be 12 months for nearly every situation.  Your occupancy "intent" of the property is usually for 12 months.  So if you intend to secure a property as a primary home you'll need to keep that as your primary for 12 months.  If there is reason to leave your property, there might be some leeway if you have a conventional loan.  For example, if your family grew in size or if your job transferred you further away, a conventional loan might make a case to provide you another loan under this circumstance because it would make sense for to need a new property.  Even after the 12 months you may need to expect to be required a lease on your subject property by some banks for this sort of a reason.  This can be a very "grey" area and you should certainly be interviewing your lender you are prequalified on this for their tollerances.

    Also, incase others are researching this same subject there are some very "different" requirements for FHA loans when vacating your primary home and needing another FHA loan on another primary home.  FHA loans do allow you to have 2 loans at the same time with them (not every bank will follow this rule though) but if you need the rental income from the property you are vacating, then you will need 25% equity in that home in order to be able to use the rental income.  Again, not every loan officer/lender knows this rule.  It's really obscure and very rare that it comes into play but maybe this post will help someone in the future.

    2Reply
  • Michael Conrad
    OP
    Member since 2018 · 7 posts · 1 vote
    7y

    Your goals and story: My wife and I want to grow a rental portfolio in Colorado.

    Type of property: Single family (preferably with accessory dwellings / carriage houses)

    Location of property: Colorado Springs

    Purpose of financing: Purchase

    Type of financing sought: Preferably conventional since we don't have a big complicated portfolio yet. But open to other ideas if the numbers work.

    Current or prior ownership of real estate: Currently own a 3/2 house and a 1/1 carriage house that is rented short term. We have roommates in the main house with us.

    Occupancy: Owner-occupied with long or short term tenants on the property

    Value of property at present and/or your offer price: $400s

    After repair value: $400s

    Anticipated appraisal issues: No

    Current rents per month: Currently STR

    Fair market rents per month: $1200/mo main level, $1200/mo basement, $1000/mo carriage house 

    Down payment or equity: $50k available but would prefer to save as much capital as possible and do 5% down

    Source of down payment funds, if applicable: own funds (cold hard cash in bank account)

    Income Source: W2 income for my wife and I both

    Gross monthly income (optional): $11k

    Monthly debt obligations appearing on credit report, plus (if applicable) personal rent and alimony/child support/etc: $3.1k (current mortgage and small student loans)

    FICO: 775+

    Credit issues: None

    Additional details: Thanks in advance for the help!

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  • Michael Conrad
    OP
    Member since 2018 · 7 posts · 1 vote
    7y

    @Andrew Postell Thanks for the quick response. We intended on living in our current home for 12 months. We are now a little over 8 months into it. We just found a great deal and were originally told we just needed to document why we are now planning on moving. 

    Would a baby on the way change anything? Or homeless people ending up on our porch when it rains outside? And we have had to call the cops. Or my wife being able to walk to work if we were at the new house? I am just curious what a 'legitimate' reason to leave a property consists of and what doesn't.

    All this 'grey' area is a little frustrating. I like to know when I can make something work. But I guess it's nice sometimes when you are able to make it work out.

    If I delayed closing by 60 days and closed exactly 12 months later, would that have any weight to it? It just seems a little goofy to me. Thanks again in advance.

    0Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    7y
    Originally posted by @Michael Conrad:

    @Andrew Postell Thanks for the quick response. We intended on living in our current home for 12 months. We are now a little over 8 months into it. We just found a great deal and were originally told we just needed to document why we are now planning on moving. 

    Would a baby on the way change anything? Or homeless people ending up on our porch when it rains outside? And we have had to call the cops. Or my wife being able to walk to work if we were at the new house? I am just curious what a 'legitimate' reason to leave a property consists of and what doesn't.

    Those are all great reasons. Purely financial motivations, like finding a great deal, are not. The idea being that someone primarily and only motivated by financial reasons will very likely commit occupancy fraud (see below).

    It's because every situation and scenario is different.

    Yup that would work. Much lighter shade of gray. 

    As automation takes over, human underwriters are responsible for less and less. One area where they still rule the roost is related to the most common form of mortgage fraud: occupancy fraud. Since they are responsible for less and less, they tend to focus on those areas.

    1Reply
  • Michael Conrad
    OP
    Member since 2018 · 7 posts · 1 vote
    7y

    @Chris Mason Thanks for such a thorough and helpful response. In regard to the 12 months, why is it still a shade of gray? Albeit 'lighter,' but still gray? That part I don't quite understand.

    0Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    7y
    Originally posted by @Michael Conrad:

    @Chris Mason Thanks for such a thorough and helpful response. In regard to the 12 months, why is it still a shade of gray? Albeit 'lighter,' but still gray? That part I don't quite understand.

    You've gotta sell it with the full package of house features, commute, etc. Buying "up" is an easier sell than buying "down." Your LO should go over this with you.

    0Reply
  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    7y

    @Michael Conrad would absolutely reinforce everything @Chris Mason is mentioning here.  Especially the part about your Loan Officer guiding you through this.  Maybe the person is new or something, I was there one time too...I didn't know all of these rules either when I was new...but when it comes to your type of transaction you do need someone with experience to help navigate these items.  

    0Reply
  • Michael Conrad
    OP
    Member since 2018 · 7 posts · 1 vote
    7y

    @Chris Mason

    That makes sense. I guess it just surprises me that I would still need to "sell it." Why can't it just be as simple as, "has it been 12 months? yes? perfect, you are 100% good to go." Is there more to it than this?

    @Andrew Postell

    I don't think the guy I'm talking to is new, but maybe just not experienced with investors or being creative? I'm not really sure. I am certainly not loyal to any lender and would be happy to work with anyone that wants to work with us. We may end up partnering with a coworker or a family member to get the 20% down for an investment property since the deal is still good, but we would still rather buy it as a primary residence if possible with 5% down and move there.

    0Reply
  • Matt K.
    Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
    7y

    Investors don't buy primary residences, they buy investment properties when they are investing.... Even though this might be an investment to you, it's a primary residence to the bank (assuming you can meet the criteria and plan to live in it).

    1Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    7y
    Originally posted by :

    That makes sense. I guess it just surprises me that I would still need to "sell it." Why can't it just be as simple as, "has it been 12 months? yes? perfect, you are 100% good to go." Is there more to it than this?

     Occupancy fraud is the most common type of mortgage fraud. This is NSFW (EDIT: I removed the link after a moment of reflection, but it's the stripper scene from The Big Short and can be found on youtube), but I can basically guarantee you that she got owner occ loans over and over and over again, without moving into any of them. THAT is why underwriters have broad discretion when it comes to occupancy fraud; any time it's likely to come up (and it may not in your case, who knows, I don't know your underwriter, it may not come up at all) you really need to dig through your full scenario ahead of time IMO. We all pay for the sins of those that came before...

    1Reply
  • Nat Rojas
    Rental Property Investor · Elkridge, MD · Member since 2018 · 115 posts · 40 votes
    7y
    @Michael Conrad thanks for posting this question as I've been researching this for some time now. I as well find it frustrating to not have the black and white rules but after reading the discussion, can better understand the grey. In my situation, I'm looking to do my first house hack and would like to know and understand all of this possibilities for the next property (investment OR primary) Again, tremendous read
    0Reply
  • Nat Rojas
    Rental Property Investor · Elkridge, MD · Member since 2018 · 115 posts · 40 votes
    7y
    @Andrew Postell I'll be sure to bring this up with my lender. Thanks so much for sharing!
    0Reply
  • Michael Conrad
    OP
    Member since 2018 · 7 posts · 1 vote
    7y
    Originally posted by @Matt K.:

    Investors don't buy primary residences, they buy investment properties when they are investing.... Even though this might be an investment to you, it's a primary residence to the bank (assuming you can meet the criteria and plan to live in it).

    Agreed. That's why I don't understand. My wife and I will move there. It will be our home. Why should they care that we will rent rooms out?

    0Reply
  • Michael Conrad
    OP
    Member since 2018 · 7 posts · 1 vote
    7y
    Originally posted by @Chris Mason:
    Originally posted by :

    That makes sense. I guess it just surprises me that I would still need to "sell it." Why can't it just be as simple as, "has it been 12 months? yes? perfect, you are 100% good to go." Is there more to it than this?

     Occupancy fraud is the most common type of mortgage fraud. This is NSFW (EDIT: I removed the link after a moment of reflection, but it's the stripper scene from The Big Short and can be found on youtube), but I can basically guarantee you that she got owner occ loans over and over and over again, without moving into any of them. THAT is why underwriters have broad discretion when it comes to occupancy fraud; any time it's likely to come up (and it may not in your case, who knows, I don't know your underwriter, it may not come up at all) you really need to dig through your full scenario ahead of time IMO. We all pay for the sins of those that came before...

     @Chris Mason Exactly, she DIDN'T move in. We plan on moving in. Zero fraud. It will be our home. What still doesn't make sense is that you're saying it could have been 15 months and you still have to come up with some elaborate scenario and story to justify you buying another house to move into after 12 months. Why is that? If the rule is 12 months, make it 12 months. Why would the rule lead to discretion of someone and how they're feeling that day.

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  • Jeff Zinsmeister
    Lender · Denver, CO · Member since 2017 · 23 posts · 8 votes
    7y

    i don't think you will run into an issue based on your original comments. The timeframe really doesn't matter. If you had a baby and homeless people are ending up on your porch, that is a safety issue. I would move for the safety of my family. Any underwriter would understand this. I would get a copy of the police report, put it in the file and call it a day.

    0Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    7y
    Originally posted by @Michael Conrad:
    Originally posted by @Chris Mason:
    Originally posted by :

    That makes sense. I guess it just surprises me that I would still need to "sell it." Why can't it just be as simple as, "has it been 12 months? yes? perfect, you are 100% good to go." Is there more to it than this?

     Occupancy fraud is the most common type of mortgage fraud. This is NSFW (EDIT: I removed the link after a moment of reflection, but it's the stripper scene from The Big Short and can be found on youtube), but I can basically guarantee you that she got owner occ loans over and over and over again, without moving into any of them. THAT is why underwriters have broad discretion when it comes to occupancy fraud; any time it's likely to come up (and it may not in your case, who knows, I don't know your underwriter, it may not come up at all) you really need to dig through your full scenario ahead of time IMO. We all pay for the sins of those that came before...

     @Chris Mason Exactly, she DIDN'T move in. We plan on moving in. Zero fraud. It will be our home. What still doesn't make sense is that you're saying it could have been 15 months and you still have to come up with some elaborate scenario and story to justify you buying another house to move into after 12 months. Why is that? If the rule is 12 months, make it 12 months. Why would the rule lead to discretion of someone and how they're feeling that day.

    It's actually more insidious than that. If you're buying a home twice as big, going twice as much into debt, maxing out your DTI with a payment twice as high... no one will question a thing if you are at 12 months and 1 day. And this isn't explicitly written in the rules anywhere, it's just what plays out across the board (& I've tried repeatedly sending business to new lenders thinking "the grass is always greener").

    Worth saying for the 100th time: the mortgage industry is systemically just as stupid in 2018 as it was in 2007. Innovative new ways of being stupid have simply been discovered as it has knee-jerked in the opposite direction. It's quite the innovation hub of stupidity; a veritable Silicon Valley of stupidity. 

    0Reply
  • Matt K.
    Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
    7y
    Originally posted by @Michael Conrad:
    Originally posted by @Matt K.:

    Investors don't buy primary residences, they buy investment properties when they are investing.... Even though this might be an investment to you, it's a primary residence to the bank (assuming you can meet the criteria and plan to live in it).

    Agreed. That's why I don't understand. My wife and I will move there. It will be our home. Why should they care that we will rent rooms out?

     There was a post while back some weird state funded down payment assistance thing or something and they weren't allowed to rent out rooms... why no idea, but they weren't.  I'd keep my story simple and honest, but to the point.

    Why do you need a loan? I'd like to buy this house because it's better suited to fit my growing family.... everything after this doesn't add value and opens up to being misunderstood or whatever....

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