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Can I cash-out refinance my current primary residence as an investment property (while still living there) with the intent to buy a new primary in the coming months?

I currently own and live in a condo that has gone up in value a decent bit. I am ready to purchase a house to become my new primary, and would like to convert the condo to a rental and take cash out in a refi to go towards the down payment of new house. I understand and have researched how to use the condo's rental income to offset its mortgage (and 75% of its rental value would wash the new refi mortgage rate) so it's not considered in the DTI for the second property purchase. What I am confused about and getting unclear/mixed answers from lenders I am getting quotes for the refi for, is that because I currently live in it, it's considered a primary residence so they can't write an investment property refi? They need a lease agreement/deposit etc of a tenant, which there isn't one at the moment while I still live there. But if I get a refi as a primary residence, then I of course can't make it as a rental a couple of months later as that breaks the owner-occupancy clause. a cash-out refi just not possible in my situation? Am I talking to the wrong people? Any suggestions how to make my plan work? by zabeans870 from Ann Arbor, Michigan. Dec 22nd 2020 Reply

Hi!Yes, you can refinance now and yes, it will have to be done as an investment property. You only need the lease agreement in place if you need that income to qualify. If you don't need the income you can refinance now. What is the best number to reach you on? I'll call you and go over your options to get this done.Thank youCharlie

Dec 22nd 2020
Bert Carpenter (BertCarpenter)
#1 ranked lender in Arizona - 2,336 contributions

So this is really your dilemma. Fraud is really about intent. You are smart to be asking serious questions about what you are trying to accomplish. If you are pulling cash out of your current primary residence with the intent to use the cash to purchase a new primary residence in the next few years, then your intent drives your decision. IF you were to say to me that you are probably going to buy another house but it could be in 2022 or later, then it would be ok to still call your current place your primary and call it a cash-out for other purposes (for investments). BUT if your plans are to pull the trigger on finding and moving into a new home in the next six months or so, you run the risk of fraud, because your intent was not to stay in the home you tell the lender is going to be your primary residence and you did on honor the accepted time frame of that commitments which is generally accepted as one year. Having said that, if you were to find a new residence and the closing on it were to occur after six months, one could argue that after you did the refinance, the new home was found, and you purchased it and moved into it. The big triggers are A) making the move too soon after you close escrow while your loan is still in its initial sale to the Agency (Fannie or Freddie) and the servicing is being transferred to the initial long-term servicer. This is where most of the back-end or post-closing validation checks are performed and one would get caught not living in the home. And B) Once an account goes delinquent or the lender is notified of a change that the home is no longer a primary residence) that red flag could cause them to take a closer look. Changing an insurance policy from a primary residence policy to a 'landlord's policy' to save a few bucks would be a BIG trigger. Regarding rental income; The guidelines would require that you have the property under lease by the time you go into underwriting. The First month's rent and any security deposit has been collected, along with the lease with a term of at least one year. Underwriting will allow you to include 75% of the rental amount as additional income in your calculations. I hope this helps. ~ Bert Carpenter, The LoansA2z Team of NEXA Mortgage ~ NMLS 40586 ~ At NEXA, we've got you covered. We are licensed in all states except MA and NY and we are pending approval in VA, so give us a call. ~ 480-889-9000.

Dec 23rd 2020
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