Question about owner occupied loans with rentals

[Michael Clark]

Hello all, I'm looking into buying my first investment property. Ill be using an FHA loan, which means ill need to live in it for a whole year. What are my options for buying a triplex with all month-to-month leases? Could I purchase it and just let the bank know I won't be occupying it until the 30-day non-lease renewal period is up and the tenant is gone? Thanks so much!

[Kenny Smith]

@Michael Clark

I'd have a conversation with your loan officer on that, and how strict they are going to be.  It sounds to me like it shouldn't be an huge issue, but make sure you check, because not following their requirements is considered mortgage fraud which is a federal offense.

Good luck!

[Mandela Shaw]

Shouldn't be an issue unless you intend on closing in < 30 days right?

Unless the downpayment amount is a factor, or unless you are adamant on staying in one of the units, you may want to shop around with some hard/private money lenders as well. Banks that finance qualified loans such as FHA and conventional loans will not valuate the property based on its income potential the same way a hard/private money lender will.

On the flip side, your downpayment will be higher. Unless you are securing the investment 25% or more under market. But at least the non-qualified lenders will not require that you say in it.

[Eliott Elias]

Need to have tenants of unit you are occupying out before closing 

[Andrew Postell]

@Michael Clark FHA does require that you occupy the property within 60 days of closing (so 59 days or less) and that you occupy the property for 12 months. So if the existing lease has language in it that reflects the tenant is required to have a 90 day notice before moving out...then that means that notification needs to be provided to them and then you close when that notification has 58 days or less on it. Hope that makes sense how I am describing it. Essentially the FHA underwriter will ask for a copy of the leases to verify that you can move into the property under those requirements.

You can absolutely accomplish this and the tenant does not have to move out before closing.

[Jonathan Taylor]

@Michael Clark some banks allow letters of explanation stating as such. I've done that for some of my clients and some lenders allow it. Ask you LO and see as each state may have different terms on vacating a unit for the owner to occupy.

[Michael Clark]

Thank you all!

[Grace Maxwell]

I have previously done this by providing a copy of the lease showing the required notice to terminate and proof that the notice was delivered. Notably I had one client send me a selfie next to the notice posted on the door as proof of delivery. Worked, surprisingly. I wouldn't count on selfie-based underwriting, and would write it as part of your offer that the seller agrees to serve notice to that tenant at some point, since you wouldn't be party to the lease until you own the property.