I am trying to take advantage of a 3.5% down FHA loan by purchasing a duplex in Wisconsin for my Grandma and one other tenant to live in while living in California. I don't know how to go about declaring it a primary residence if I work in California. I do have an online business and have Wisconsin license that I might be able to use but legally I don't know if this is possible. Please comment advice.
Madison WI · Member since 2019 · 71 posts · 45 votes
6y
@Alan Nogier
I am not a lawyer and this is not legal advice. From my understanding for FHA it absolutely has to be your primary residence for a year otherwise it is considered fraud from my understanding.
Rental Property Investor · Hammond, WI · Member since 2017 · 139 posts · 217 votes
6y
You're asking how to commit mortgage fraud. You can't buy it with an FHA loan if you're not planning on living in it. I can't imagine a more giant red flag than trying to claim you "live" in WI when you actually work and live in CA. This is a bad idea.
Lender · All 50 States · Member since 2015 · 401 posts · 250 votes
6y
Unfortunately, what @Luke G. said is correct. You have to live in the property to qualify for an FHA loan. If you fudge information, it's mortgage fraud and potentially some jail time. It's not worth it.
@Scott Rogers idea of co-signing is the best way to handle it. This way it's in your grandma's name and she lives there.
Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
6y
Your only option MAY be to buy it jointly with your grandmother. I remember reading somewhere that you could do FHA if you had two buyers on title and only one of them lives there.
Otherwise, try researching other low down payment options. FHA is not the only one.
I want to thank you all for your responses and updates on the plans. I plan to help my grandma build her credit it up a bit more in order to have her co-borrow and live in the unit on our behalf. She wouldn't be able to qualify on her own but with my help she will and we as a team would qualify for the FHA loan.
Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes
6y
Is your long-term goal to be a real estate investor owning a small, out-of-state rental property? That's the only reason I could see this being a good plan regardless of what kind of financing you use.
You said you want to help grandma, "build up her credit." Why? What's the plan long term? Bank's require co-signers for a reason: the person with poor credit is unlikely to be either unwilling or unable to pay (or both).
From an investor's perspective: most duplexes in higher priced states (i.e. Cali) do not cash flow positive. This will be particular true if grandma is living there and not paying market rent/her share of the payment isn't what market rent would be if she were renting. So you will be bankrolling the difference, most likely.
From a personal finance perspective: What about this 'building up credit' plan has to be accomplished via home ownership? Could you instead coach her on ways to handle money wisely, maybe using a detailed study course like Dave Ramsey's Financial Peace University? That way she not only improves her credit, she also pays off her bills and can stand on her own without your constant supervision/financial support.
In short: I don't understand the point behind building up grandma's credit. The main reason people build credit is to borrow money at some point, and a few other minor things like better insurance rates. But if you've been the one making sure the bills get paid, what makes you certain she will have the knowledge, resources, and discipline to handle making payments once you step out of the picture? On the other hand, if your plan is never to step out of the picture, then what's the point in building up her credit in the first place?
I'm one of those pesky people who insists on seeing the reasoning behind something. It's useful before advocating the best strategy.
+10 points to the advice you've received so far. Whatever you do, don't lie and claim to be an owner occupant when you're not. Two main reasons: 1) the perceived gain isn't worth the potential risk to you and your grandma 2) it's just always good to be an honest person.
For FHA, a SFR you could co-sign for her, as a family member. If you are planning on a MFR, you will be a co-borrower and both of you would be required to live in the property.
If you don’t both live in the property, you will be required to put down a much larger down payment and would be better off just going conventional at that point.