Conventional loan says I must occupy the home for 1 year.

17 Replies

I just closed today on my first property. We done a conventional 30 year loan and at closing there was a paper I had to sign that said I must have the home as my primary residence for 1 year. My wife and I are thinking of living in our RV full time and just renting the house out. Is there a way around this? What if I ‘technically’ keep this as my primary residence and just rent out the rest of the house? Or does the lender not really even care? The insurance is escrowed so they will be notified if I switch to landlord insurance. Or do I just tell them I don’t want to occupy it anymore and want to make it a rental is this possible or would that have to completely rewrite the loan?

Thanks in advance for any wisdom on this!

@Nick Cooper Did you know this before you settled on the property?  I have to be honest if you didn't know you should have. Essentially you have committed bank fraud.

Now I don't know what the consequences might be nor do I know the probability of suffering from them. It may be a low risk to you issue. Hopefully others with experience can chime in here. @Chris Mason

Now onto my soapbox:      If you knew in advance and you deliberately decided to break the rules and do it anyway, that is not the right attitude to succeed in this or any business. I say this not just for you but for others reading along so they don't make the same mistake. 

@Ned Carey we had intention on living in it until we build our new home but now thinking it will just be easier to stay in our RV for about another year and rent it out sooner instead of waiting until the new house is built.

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@Nick Cooper hopefully @Chris Mason will chime in. If it was truly your intent, i think it is legal to change your mind. That is what I would like Chris's opinion on. Are you actually required to live there a year or if after you move in are you allowed to change your mind if circumstances change. 

It sounds like you had already changed your mind before you signed the documents. That would be a no no.

I'm not a judge or anything, but I think you'd have a hard time convincing a judge that your intent, in your heart-of-hearts, really did change in between signing and the evening of signing...

Nick, that's your primary residence. For a year. Your head is supposed to fall onto a pillow in that house on 183 spread out evenings, of the next 365 evenings. You signed paperwork promising as much. Don't rebut it with me, I'm not a judge or jury. 

You can rent out extra space, etc.

That happened to us on a refi, we were staying in the home for about 6 months and then moving to a place we were fixing up. No one asked during the application period and so it was a surprise at closing. We'd had multiple mortgages before and only had to sign that type of statement with a VA mortgage, which this was not. No one checked up on us when the mailing address and insurance changed. I think generally as long as the auto draft cleared every month they were happy. I'm not advising you on any course of action, in our case we were occupying it as our residence at the time and it was about 6 months before we changed anything over. To be on the complete up and up you could keep a small room for yourself there and rent to roommates or do short term rentals. It being your primary residence doesn't mean you can't rent out most of the space.

@Nick Cooper

I guess I don’t know the details here. Is this house on a large property and you plan which you would park the RV on and live in the RV? That seems to me like it would be established residence, but I’m not a lawyer or a judge, so don’t consider this legal advice.

So if I do decide to just rent out extra space in the house while I live in one of the rooms I assume I would need to change the insurance for this to cover the renters?

This is not something that is often caught, so you could do it and hope no one ever investigates. However, there is a 0% chance you get out of trouble after posting on a public forum about it with your first and last name and a photo of yourself. 

Mortgage fraud is a federal crime. Just move into the house and rent out the rooms.

@Nick Cooper that is literally why you signed the document, so you can't later say "I didn't know". You had to sign this because you took out an owner occupied loan, with owner occupied insurance, paying owner occupied property tax rate. Had you taken out an investment property loan, the interest rate and upfront costs would have been much higher, as would taxes.

The simple and correct answer is that not occupying the property is mortgage fraud. Change of intent is only a valid defense if the situation is outside your control. For example, taking a new job 500 miles away or if your wife got pregnant with twins an the house is too small. Still, even when people have these situations occur, they always move in for some period of time. If you never even moved into the properly, no logical person would believe you ever planned to live there. 

Others may share their own experience of committing mortgage fraud and not getting caught, but just be aware people do get caught. They send out testers to validate occupancy. Not on every loan, so like any crime, getting caught just depends on luck. Another situation is a fire or other catastrophic situation where the insurance company finds out you were not occupying the property. 

It would be ok if you rented bedrooms in your property and occupied one of the rooms. Just make sure the lease is specific that the tenant is renting a room and has rights to share common areas. Also make sure on your taxes that you are prorating depreciation and expenses to reflect the portion of the house you are occupying. I would also make sure that you really do occupy the bedroom. Some people think they will just have a bedroom, but never sleep in it. Occupancy is where you sleep.

Bottom line "technically" isn't a thing. You either occupy it or you don't. Things can go wrong and it may be hard to lie your way out of it. As a young married couple, I don't think you want to screw up your future over a few bucks. Just in general lying and committing fraud is a bad mindset. 

Find a way to do things the right way, instead of looking for a way to not get caught. One idea is rent the RV full time and live in one bedroom in the house. Get income from the other bedrooms and the RV. Do this for one year, then buy another house to repeat.

Originally posted by @Nick Cooper :

@Joe Splitrock

Thank you for the insight! A year goes by super fast anyway so we will just rent out half the house and before we know it the year will be up. Didn’t think about renting the RV that’s a great idea as well!

 If it is parked, people rent RV on AirBNB and make lots of money. Same with rent by the room, more money than renting to just one family. As you pointed out, a year goes fast so you can try it out and see what you like (or don't like). You will like the money:)

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@Chris Mason

I’ve seen this idea endorsed by Biggerpockets and Craig Curelop author of the house hacking strategy, can you sleep in a trailer in the back yard or driveway and rent out the rooms inside the house or Airbnb out the house. In this scenario you would possible only store your things inside the garage or perhaps just use the house to cook and shower. A trailer-hack if you will.

@Nick Cooper hey bro that’s kinda illegal, if you wanna play with fire go for it, if you didn’t intend to occupy it while getting the mortgage as a primary that is mortgage fraud, if your circumstances change then you could maybe do this

@Nick Cooper that’s how conventional loans work unfortunately. They are for your primary residence. The only legit way around it is if you get transferred to a different city for work, or have some life circumstance that prevents you from living there.

If you live on the same property just in a trailer, or another house that you build, that will be a tough sell.

The term "Primary Resident" doesnt mean you have to live in it every day of the year. Every lender defines it slightly different because every lender is different. With my lender I have to occupy the house 180 days of the year under a primary conventional loan and can be rented the rest of the days and it counts as a primary residence with no penalties. Thats how some people do a second home thats not considered an investment property because part of the year they are at one place and another part of the year at another place. Same can be said for your RV trips. I would ask your lender to define "Primary Resident", they will be your best bet in how many days you technically need to live there. Even RV tiny homes need somewhere to send mail to.  Good luck friend!