How soon can I refinance owner occupy to investment?

Question

I've been digging through old threads and haven't found a clear answer to this.

If I get a conventional loan for a primary residence duplex, lets say with 5% down, but then I quickly build equity up to 20%, can I--before a year is up--legally move out of the property and rent out the unit I was occupying if I refinance under the pretense that the property will be used as an investment property? And if so, how long must I wait to do that refinance?

John Barrows · Answer

Be advised Byron, most all appraisals will have a 6 month seasoning. If you do anything within 6 months the underwriter will see the old appraisal or be notified by the new appraiser that an appraisal was done less then 6 months ago. With that said, it will also depend on the bank with whom you are doing business.

The only reason I am saying this is because I have been caught in this with a client who was trying to buy a place for $30K more then the previous buyer. Their bank refused to do the loan. Of course, I didn't get a commission either but did, learn an excellent lesson.

Christian Hilbrich · Answer

@Dennis Cosgrave

Why would there be Capital gains tax on a property that hasn’t been sold?

Byron Broughten · Answer

Hey Bill, thanks for the reply. My thought process is that refinancing to investment would allow me to get a second property, and second stream of cash flow, much sooner, maybe six months sooner, both because I would be free (theoretically) to use another 5% down payment on the second property with another primary residence loan and because my first property would no longer negatively affect my DTI as much.

I just want to know, would I be allowed to do all that?

Jim Blackburn · Answer

@Byron Broughten

You can move out anytime you want - nothing prevents life changes.

You can cash out 75% of the new higher appraised value on single family 6 months after the closing date.

70% for 2-4 unit.

Dennis Cosgrave · Answer

You can legally move out and rent out the property before the year is up. However, keep in mind that when you move out, that is a change in use and if the property has significantly increased in value it could trigger capital gains tax which would be taxed at a rate as normal income. You will likely be unable to refinance until you have moved out and the tenant is occupying the unit. The bank will want to see a copy of the lease.

Bill B. · Answer

Why would you want to pay all the refinance costs to refinance at a higher investment rate? Put in the whole year and just get another personal residence loan. you get to keep the lower interest rate and not pay refi costs.

Andrew Postell · Answer

@Byron Broughten Unless you are using a grant program there probably won't be anything that would happen to you EXCEPT if you needed another loan in the mean time. Things happen; job transfers, families grow, etc. So just moving out won't be a big deal. You are committing to occupy the property as your primary home though. Do keep that in mind. If you are using a primary home loan for an investment property....that would be bad...as in mortgage fraud bad. So don't do anything CLOSE to that. But you can certainly refinance right away, no waiting at all on that. If you do want to move out and refinance....you could do it right away but you would need 25% equity to do so. And if something were to come up that would force to to move, it would be reasonable to keep that loan in place. But just know getting any other loan in the mean time will need strong reasons why they would grant it. Hope this helps answer what you are asking.

How soon can I refinance owner occupy to investment?

How soon can I refinance owner occupy to investment?

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