Owner Occupied Finance Scenario

[Tom Horan]

Hi Folks - I’ve looked at quite a few posts but nothing seems to answer my question. I live in Colorado if it matters at all.

House 1: SFR purchased with owner occupied conventional loan 2.5 years ago.

House 2: SFR purchased with owner occupied conventional loan 1+ year ago.

Scenario: I want to refinance House 2 to a better interest rate. If I refi now as an owner occupant, are there lender/legal expectations that I stay in that property for any duration? Looking to potentially purchase House 3 in 4-5 months with owner occupied financing again and want to make sure I'm not shooting myself in the foot by refinancing House 2. DTI will be fine - I'm not worried about that - more so the legalities of this strategy. House 3 will also likely be conventional financing with 5% down.

Thanks in advance for the advice. 

[Julee Felsman]

Hi Tom!

I'm a residential lender and licensed in Colorado, so I can definitely answer this for you:

when you sign closing documents for an owner-occupied purchase, you state an intent to occupy the property for the next 12 months. Mis-stating your intent is loan fraud, but would be pretty hard hard for a lender to prove... they can't climb into your head (but don't do it obviously!).

The practical ramification of refinancing as owner-occupied shortly before you plan to move and buy with an owner-occupied loan is that lenders share data with one another. So when you go to apply for the next loan, that lender will know you just closed an owner-occupied loan a few months ago.

The underwriter on that loan will need a really good explanation as to what changed between the day you signed those documents stating an intent to live in the property for another year and the day you applied for a new owner-occupied loan.

I've seen all manner of crazy things over the years... I've had clients find out they were pregnant with twins, get job transfers, have family move in, get married... all kinds of things can create a motivation to move that you wouldn't have predicted when signing loan documents.  

I have noticed underwriters get less worried the closer to a year that you get. A lot can happen in a year... but if you plan to move in a few months you should refinance as non-owner-occupied (or not refinance if the math doesn't pencil out on a non-owner occ loan).

Love that you're house-hacking your way to a small real estate empire. I got started just the same way!

Julee