Forgotten Your Password?

Need to Register?

Question Icon

I just refinanced my house, but considering converting it to an investment property and moving into a rental. Can I do this?

My long-time girlfriend and I each live and work an hour away from each other, and we'd like to move into a place together somewhere in the middle, instead of spending every other night at each other's place and commuting back and forth. She lives in an apartment, and her lease is up in 2 months, and I own an older house that I've had and lived in for 5 years. I just refinanced my old 6.3% 30 yr fixed to a 3.5% 30 yr fixed mortgage last month to save up some extra money. Now the mortgage payment will be low enough that I might be able to rent the house and make a small profit, but I'm unsure if there are any legal issues with doing this. I've read similar threads that say if you're purchasing another residence and will be switching that to your primary residence, you would have to wait 12 months, but what about if I were to move into a rental and convert my current primary residence into an investment property? Are there any wait times or other legal issues with doing this? by austin_857_605 from , . Feb 24th 2013 Reply


Charlie Sparks (CharlieSparks)
#9 ranked lender in New Mexico - 394 contributions

I wouldn't recommend converting your home to a rental so soon after completing an owner-occupied refinance. Even though you are looking to rent a new residence as opposed to purchase one, your current lender will be alerted when you change your mailing address with them as well as with your homeowner's insurance company, etc. The only way you could do this now, and it would still be a bit of a fight, would be by documenting something like an unforeseen change in employment that requires you to relocate. If you fail to make your case they could either raise your interest rate, require you to increase your equity to 20% of the value or both. Depending on the type of loan you have it could be called due and payable. At this point an hour commute wouldn't seem so bad, right? Best of luck to you whatever you decide. : )

Feb 24th 2013
2
0
Bert Carpenter (BertCarpenter)
#38 ranked lender in Arizona - 1,815 contributions

The biggest problem you have is proving intent. Because there is still so much fraud, We have actually seen Investors (banks) hire people to go out and knock on doors to find out who is living in the recently refinanced (or purchased) home. Here's the scenario you want to avoid. 120 days from when you refinanced, a "Surveyor" knocks on the door and asks for you. They resident responds "That's my landlord". The bank then sues you for fraud, or worse, turns you over to the FBI's Mortgage Fraud Task Force for prosecution. Although it is true that at the time you refinanced, you may not have been thinking about moving and converting it to a rental, but can you prove it? The evidence is going to be stacked against you. My advice is to suck-it up another 6-8 months, stay where you are, and then the chance you could be accused of doing anything wrong is virtually zero. ~ Bert Carpenter, The LoansA2z team of NOVA Home Loans ~ NMLS 40586 ~ Licensed in California and Arizona ~ www.LoansA2z.com 888-889-9950

Feb 24th 2013
1
0
Joe Metzler (JoeMetzler)
#1 ranked lender in Minnesota - 3,477 contributions

You just refinanced and signed documents swearing the house was going to be owner occupied. That allowed you to get the great owner occupied home interest rate versus the higher investment/rental property rate. Within those signed documents, you swore the house was owner occupied, and would continue to be FOR AT LEAST ONE YEAR after that date. If the lender becomes aware of the fact it is no longer a primary property, mortgage fraud could be charged, and the lender could call the loan due immediately.

Feb 25th 2013
1
0
William J Acres (William_Acres)
#1 ranked lender in Arizona - 7,861 contributions

As everyone else has stated, it all comes down to intent.. But it's hard to prove in your scenario since you just signed the papers... Keep in mind, the lender would never know unless there's a problem such as a default, but none the less, you would be in breach if you did not notify them.. Certainly if you were all of a sudden to become engaged, then that your scenario would fall into the acceptable and reasonable situations which lenders would not have a problem.... I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. 480-287-5714 WilliamAcres.com

Feb 25th 2013
1
0
Kim Jones (KimJonesHomeLoans)
#74 ranked lender in Georgia - 21 contributions

Regarding the 12-month rule to reside in your home after a refinance; When you apply for any type of mortgage loan, you have to verify on your closing documents that you intend to occupy the home as your principle residence for at least 12 months. FHA, Fannie Mae and Freddie Mac now have a "check system" in place whereas, if your current mortgage does not show up on your credit report (when pulled for a "new purchase"), then they run your address through their check system and see when it was refinanced. If you are going to just rent another residence it may not be an issues, as no checks would be completed....

Feb 24th 2013
0
0
Phil Dumouchel (PhilDu)
#32 ranked lender in South Carolina - 2,225 contributions

Great advice by others, I recommend caution...

Feb 24th 2013
0
0
David Kosmecki (David_Kosmecki)
#39 ranked lender in Minnesota - 256 contributions

Absolutely. You will have to:1. Qualify with both payments2. Make sense of the move. Moving to larger home, because of job change, etc.Good Luck. I have 35 years of experience and am licensed to do business in Minnesota 763-519-1100

Feb 24th 2013
0
0
Peter Savino (855411LEND)
#100 ranked lender in New Jersey - 332 contributions

Each lender is going to have its own rules on this subject. I would recomend that you contact your mortgage company and ask questions. Make sure to get names and document answers. With the refi just occuring there may be an issue.

Feb 24th 2013
0
0
Chad Bradford (Cwbradford)
#0 ranked lender in Arkansas - 9 contributions

CharlieSparks gave you the best response. The terms of your refinance were based on the property remaining your primary residence for "x" amount of time. Think long term here. Move now and run the risk of having the terms of your loan change, or wait nine or ten months until you are no longer contractually obligated to have it as your primary? The choice is yours my friend. Best of luck.

Feb 24th 2013
0
0

If I stayed put for the 12 months, and then rented it out, would I still need to refinance to an investment property loan? And, approximately how much higher are investment property loan rates compared their owner occupied counterparts? If they're considerably higher, I may not be able to make any money from renting, and may have to reconsider.But at the same time, I was wondering if there any other options that would be available to me in the short term, such as re-refinancing as an investment property now, or would that still be subject to the same 12 month waiting period? And, if possible, would it best to go to the same mortgage broker I just used?

Feb 25th 2013
0
0
Chad Bradford (Cwbradford)
#0 ranked lender in Arkansas - 9 contributions

For your short term, call your mortgage company and ask them directly about your situation. That is the only way you will know 100%.

Feb 25th 2013
0
0
Charlie Sparks (CharlieSparks)
#9 ranked lender in New Mexico - 394 contributions

Regarding your follow up question, after 12 months you would be free to convert to a rental unless the lender has imposed an additional specific condition on doing so... which isn't likely in my opinion. Then you would not need to refinance into an investment property loan. In the short term you COULD refinance into an investment property loan and vacate immediately, but you would incur a new set of closing costs and possibly be required to pay 'points' so this is not a good idea. Even if the same mortgage broker can discount some of their costs, most costs are set by 3rd parties and the broker won't have control over them although you would get a deep discount on the new title insurance policy. Loans on investment property can be anywhere from .5% to 1% higher than those for owner occupied. I hope this helps.

Feb 25th 2013
0
0

That answered everything. Thanks, Charlie! And thanks to everybody for all of your advice. I have a much better understanding of my options now.

Feb 25th 2013
0
0
Bert Carpenter (BertCarpenter)
#38 ranked lender in Arizona - 1,815 contributions

As to your follow-up question, Once you have completed your 12 months, you are under no obligation to refinance as an investment property. Actually, you could begin the process of moving out in 9-10 months from the date you signed the refinance papers. It will probably take you into month 11 or 12 to actually find someone willing to rent, and if you miss the one year by a month or less, it is not likely you will have an issue. ~ Bert Carpenter, The LoansA2z team of NOVA Home Loans ~ NMLS 40586 ~ Licensed in California and Arizona ~ www.LoansA2z.com 888-889-9950

Feb 25th 2013
0
0
Subscribe to our news feed.