Tax Implications for Rental Property With First Time Homebuyer Loan

[Jeff McNamee]

Hi all- I have a condo I rent out that I originally obtained through a first time home buyer loan. Well my lender sent me a letter because they noticed this isn't my primary residence anymore and the loan states that I need to be the primary occupant for the life of the loan. They said that I need to contact a tax professional because there might be tax implications and it may affect my mortgage interest deduction. Can anybody shed some light on what the penalties are here or the tax implications, how it affects mtg interest deductions.
Thanks in advance!

[Jon Holdman]

Steve's right, read the note and the other documents. You might be able to find a loophole to leave the current loan in place. Some time with a lawyer might be money well spent. Unless this was some sort of subsidized financing, or specifically limits your ability to move out and rent the place, I don't see they have much of a leg to stand on. What you're looking for is any sort of provision that puts you in default if you move out.

It just occured to me you're talking about a condo. Those can have special provisions for OO vs. NOO. That's because when more than a specific percentage of the units in a project become NOO, the entire project becomes "non-warrantable". That means financing is much more difficult for any property in the project. There could be provisions to try to avoid this.

If you have to refinance, you are going to bring cash to the table. If others are listed for $96K, they're selling for less than that. I don't think you'll find a lender who will go above 80% for NOO loans, and 75% or even 70% is more likely. Even at 80% and a $91K value, you'll need to bring $18K plus costs to the table to refi. OUCH!! Might be time to consider a short sale.