I currently own a single family home that is my primary residence. I would like to purchase a 2 family property and then sell my current home after I close on the 2 family.
My question is if I am not able to sell my current home, then can I keep both homes and still pay favorable terms of a primary residence loan on both? Or will the mortgage company go back and reclassify my 2 family home as an investment loan and raise my rates (even after I locked in my rates and had the closing)?
I’m sure this happens all the time when homeowners buy a second home fully intending to sell their first home once they move in, but not being able to because of market conditions.
It is possible because our family has two residences and the accountant treats them both the same way as far as deducting mortgage interest, etc.
But if your new 2nd home is a 2-family I believe you would only be able to use 1/2 as a residence, and the other half would be treated as a rental–depreciated, etc. Unless the entire building is vacant and then it could all be 2nd home.
The advice from my accountant is to be sure and have it on a tax return at least once. In other words, don’t make two residence moves inside 1 tax year if you can help it.
Thank you for your reply.
My question was more geared to financing because your interest rate on a loan is lower on primary residence than on an investment property.
I want to be sure I can get the preferred rate on the 2 family and keep it that way in case I can’t sell my current home.
I can’t imagine the bank will go back and re-adjust your rate if you have to primary residences, can they?
No they cannot go back and change your rate. What they will do is first of all wonder why you are moving from a SFR to a duplex? Is the new residence larger than your current home? If you can get the lender to approve and close the loan they will make you sign a form at closing stating that you will occupy the new property within 30 days. If they find out you lied they can call the note due and payable immediately. The most important thing is does the deal make sense. If you are living in a 200k property and trying to say that you are selling it to move into 1/2 of a 100k duplex you may have some trouble.
I don’t see where there would be any “fraud” doing something like this. The bank isn’t going to care about you now renting out your former primary residence. I did this and went to the bank and told them I was going to purchase a new primary residence and rent out the former home and they actually counted the income from the ‘new’ rental. Don’t sweat it, the bank isn’t going to make you switch to commercial terms or anything like that.
Your “don’t sweat it” comment shows how uninformed you are about the current state of the mortgage market. I understand you deal with small local banks in your business dealings and that works for you. However the rest of the world does not work that way. Most if not all lenders will look at this transaction through a fine toothed comb because it reeks of fraud. As I stated above. Any UW in their right mind is going to want to know why this person is moving from an SFR to a duplex. The OP better have a very good reason other wise this file will be declined so fast it will make their head spin. Perhaps you might email them the name and number of the “local” bank that seems to do what ever you want them to do because NO ONE else is going to look at this deal and so “no sweat”.
Mortgage fraud requires the intent to harm or deceive the financial institution. The only red flag I see in the original post, as previously mentioned, is the new primary being a 2-family residence. It certainly begs the question from the underwriter but perhaps the poster intends to move his mother-in-law into the 2nd unit, who knows? He clearly states in his post that his intention is to purchase the 2-family, move in and then sell his old primary. If the underwriter doesn’t like it then quote him a higher rate. So long as it is disclosed I don’t see any fraud here.
You are correct. If the OP truly intends to live in the property and he has his current home listed on MLS he should be okay as long as he has solid answers for the barrage of questions the UW is undoubtably going to have. Keep in mind OP that you will have to qualify for the new property with the payment for the old property included. You should be able to use 75% of the rent on the unit that you will not be occupying towards qualifying.
I had similar situations:
You can own two residences for your personal use, in this situation, one of the homes was listed as a second home with the lender, but at the time these properties were not rented out. They really were my personal residences.
In another situation, when we moved out of state, they were questioning my loan because I was moving to a home that cost about 1/3 of my prior personal residence. They questioned me as to whether it was actually a rental property. I pointed out that the difference in price was because I was moving from CA to TX, and the price of my new home was about the same as what I had originally paid for my home in CA. They approved the loan. This was about 2 years ago, when things were more lax.
I closed a deal a few weeks ago for some commercial land at $127k. I’m closing a deal in 30 days for $525k, and another one in about 45 days for $336k. Clearly I am completely uninformed about the current state of the mortgage market! It’s obvious I have no idea what’s going on. Chris W, from your posts I surmise that you’re a broker and I think we’ve had this discussion before. Secondary market products where you dabble are a totally different ball of wax then walking into your local bank and dealing with a human rather than making sure you fit into some matrix. I’m not advocating that the poster keep a big secret from his banker as to what’s going on. My point was simply that it is my belief that if you’re on the up and up with your banker I don’t think it’s a big deal. What if your payments on your personal residence was 2k/mth and you could live in a nice duplex at about 500 bucks/mth. If the situation was right, why not?!? I’ll say it again. It’s been my experience that it’s not a big deal. All the other advice here is speculation, I’ve actually done exactly what you’re asking about. If someone else has been told by their banker that this is ‘fraud’ I feel bad for them and their relationship with their banker.
Thanks for the replies.
The reason I am moving from single family to duplex is because I want to rent out one of the units and live in the other. That way have half my mortgagte paid for me and sock away the rest in savings or investments.
But I’m not going to rush to move into the duplex until I sell the single family.
Has anyone ever seen this “must move in within 30 days” clause?
I have had insurance canceled before I could move in before. Apparently someone from the insurance company drives by and looks for signs of life. They canceled 15 days after escrow closed, very annoying. I put on other insurance.
Put inside lights on a timer, and start moving in little by little. Put the utilities in your name. Put in a change of address.
There is absolutely nothing wrong with having two residences. It is not fraud, and yes it is okay to move “down”. You can even write a letter of intent.
What you are doing is sooo smart…moving into a 2-family to cut your cost of living
I to deal with small local banks in the area for second liens and construction loans. What I find to be most irritating is that you take your microcosm of a lending enviroment and feel the need to offer that as advice to the rest of the world. It has nothing to do with the secondary market or being a mortgage banker. It has to do with the fact that you are giving advice on a subject in which you have very little experience. So now lets say the OP takes your “don’t sweat it” advice and puts down earnest money and pays for an appraisal, and an inspection and now has 2-3K wrapped up in this deal only to be told by the UW “this deal does not make sense because you own a 200K home, and you are moving into half of a 150K duplex?” so now he is scrambling around trying to find financing before his earnest money go “POOF” not to mention the $800-$900 he lost on inspection and appraisal. All because he took the advice of someone who just happens to have gotten a few mortgage loans. I have bought several cars over my lifetime, but that does not make me feel like I have enough knowledge to give advice on auto financing.
Read my posts, almost always I say something to the effect of, “This is what MY bank did/does” or “This is what I was able to do”. I don’t think I ever say “This is how it is”. I’m simply offering up what I was able to accomplish to give some insight to what is being offered by different lenders.
It has to do with the fact that you are giving advice on a subject in which you have very little experience.
You don’t know me, my holdings, my portfolio, etc. just stop right there.
So now lets say the OP takes your "don't sweat it" advice and puts down earnest money and pays for an appraisal, and an inspection and now has 2-3K wrapped up in this deal only to be told by the UW "this deal does not make sense because you own a 200K home, and you are moving into half of a 150K duplex?" so now he is scrambling around trying to find financing before his earnest money go "POOF" not to mention the $800-$900 he lost on inspection and appraisal.
Another smart comment. Look back 3-4 posts from your latest one and read what I advocate this person do. My quote was,
I’m not advocating that the poster keep a big secret from his banker as to what’s going on. My point was simply that it is my belief that if you’re on the up and up with your banker I don’t think it’s a big deal.
I go on to say,
I’ll say it again. It’s been my experience that it’s not a big deal.
If someone is taking what me, you, or anyone else says is possible and making investments without doing their own research and/or due diligence they deserve to loose 2-3k.
so now he is scrambling around trying to find financing before his earnest money go "POOF"
While you may believe I’m giving advice on a subject in which I have very little experience I would like to offer some advice to you. Clearly you’re not experienced or smart enough to put into contracts multiple clauses that would allow the buyer to regain their earnest money if they are unable to obtain suitable financing. Anyone with any brains wouldn’t allow their deposit to go “POOF” just because they couldn’t obtain financing. You might want to make a better argument than that if you’re going to try and disparage me.
We are not talking about me here. We are talking about the OP. You can say what you want about me your opinion means nothing to me. All I am saying is do not give advice on a subject in which you are clearly not competent enough to do so. I am not disputing the fact that you have some experience in buying rental properties. As I said before what I am disputing is your making it seem as if it is no big deal what the OP was trying to do. He is obviously a newbie looking for advice, and based on your “don’t sweat it” comment he could have run right out and put in a contract and put down money, etc…
You are not aware of his level of experience so next time why not ask more questions before you start throwing out bad advice. Because based on the quote below it looks to me as if you are giving out some very bad advice.
In the future why not just email the OP your bankers name and contact information because the advice you are giving is based on deals with that person. Not the rest of the world.
jbaldwin is correct. It is “no big deal” to buy a second owner occupied residence. People buy vacation homes and condos all the time, for example.
People often move up and sometimes down in size and price as their family and financial means change. When I have done this the lender asked me for a “letter of intent” which I was happy to give. I have never been refused a loan because of some kind of nebulous fear of fraud from the lender. The poster sounds like a completely upfront guy. He will get a loan.
Please read the original post. Deeze is not looking for a second home or condo. He is looking for a new principle residence. If he was looking for a second home or vacation home it would be no big deal. He is looking for a new principle residence that he wants to "take his time " moving into. Totally a different story than a second or vacation home.
I was quoted from a person from Quicken Loans that I could qualify for OO (vacation home) if the property was more than 10 miles from my existing home. Although I’m not sure why you just can’t get an NOO loan terms for the property you won’t be occupying. Reveal all the info. to the lenders involved and let them make the decision based on true information.