Primary Residence Mortgage vs. Investment

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As I have discovered, a Primary Residence mortgage is able to give you some of the lowest interest rates as compared to an Investment Property Mortgage. I assume much of this has to do with what the persons intention is with the property. I understand you are able to rent other rooms as long as you are a resident of that property. If someone is looking to get a property with the intention of renting out the whole thing in the future, is this something that is even possible with the mortgage type they have? Is there a minimum amount of time they have to be in it to before they are allowed to do so? Would they have to eventually (assuming they fixed it up), do a cash-out refinance and obtain a new type of mortgage allowing them to rent it out? Does this vary per lending institution or is there actual legislation involved? Curious to see if you can help me with this, thanks!

PS: Any sources would be appreciated!

I did what you're thinking of doing some years back, and mortgages then gives you 60 days to move in, and you have to live there at least 2 years before moving, though I heard that now it's one year. Your best bet is to make sure with the lender when you apply.

I refinanced a mortgage some years back, a duplex I lived in, and was told I had to there for two years for the new mortgage even though I was there 10 years, and was there a little over a year before I bought another duplex at auction, much larger, need some work that takes a few months. I wanted to move to the newer house, took a gamble, but moved in 17 months. The home I moved from needed a little work also, so technically I moved out a few months shy of two years, and had no problems. I thought of leaving one unit in the new duplex vacant for myself for a few months to make it two years, but in the end, decided not to. I heard nowadays it could be one year. I kept the mail going to the old address for a few months to play it safe.

I have heard of banks verifying. I had a co-worker who came home from work, saw someone walking from his front yard to the back yard, asked the man what he was doing there, and was told the man works for the bank and was there to verify who's living there.

BTW, the mortgage I got for the suction house was a portfolio loan, and there's no requirement that I live there. The house I moved from I kept another 10 years before I sold it, but while I had it, paid the lower residential mortgage rate.

I guess my question is the source of this "1 - 2 years" mandatory stay at a property. Is this determined by lenders and can vary for each one or some sort of actual legislation? And for your situation, did you refinance and apply for another "Primary Residential" mortgage based off of the re-appraised value? Interesting that the "timer" if you will would reset and make you stay two years even though you've been there for 10 already?

Originally posted by @Ademir Zukic :

I guess my question is the source of this "1 - 2 years" mandatory stay at a property. Is this determined by lenders and can vary for each one or some sort of actual legislation? And for your situation, did you refinance and apply for another "Primary Residential" mortgage based off of the re-appraised value? Interesting that the "timer" if you will would reset and make you stay two years even though you've been there for 10 already?

Yes, the current requirement is 1 year, back then 2 years is the mandatory stay or you'll be declared in violation, and the mortgage recalled, so I was quite aware of it. And yes, their interpretation is when I get a new mortgage, it resets so the 10 years on the prior mortgage didn't count, that's another mortgage, but at that point I didn't plan to move, so it was no issue. This applies to residential loans, not portfolio loans. Banks normally sell their loans to Fannie Mae, Freddie Mac or others, and must conform to requirements of loan buyers. Portfolio loans they keep on their books, so the bank themselves set the terms.

On a refinance, it's based on the re-appraised value. In the early 1980's when I started, interest rates were 13% or higher, and by 1993, the market bottom, they fell to about 7%. With $300K in 3 mortgages then, that's $18K in increased cash flow. I tried to get $100K more from the refinance, but due to DTI issues, the banks were hemming and hawing, so I basically got the new mortgages for a few thousand more each to cover closing cost, and they were approved quickly. Values here in NY for me have doubled even with the crash, and before the crash, 3X. I figured I get the cash flow right away, and $18K/yr is nothing to sneeze at.

I also bought the auction house in 1993, and the auction bank only required 10% down which came out to $20K, and I financed the down payment through a HELOC. I had a little problem using the HELOC with them insisting on seasoned cash, but that's another story. With the portfolio loan though, they financed 90%, didn't charge the usual points, so the closing costs were much lower.

Thinking back, what I couldn't get form refinancing out, I got from the portfolio loan, and the DTI for this wasn't as big an issue, only seasoned cash for the down payment.

 

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