My brother bought a house years ago as his primary residence. He received government assistance (bond money) to purchase the property. A few month ago he moved out and rented the house out to a tenant. He asked me to look at his paperwork and in contacting the city I have found out that he is not supposed to rent out the house, it must be his primary residence for the term of the loan. (He thought this requirement was for only a few years.)
The lender found out over a month ago that it is now a rental. When my brother revised his insurance policy and the cost changed the lender called the insurance company to find out why it had changed (I had no idea lenders did this).
My recommendation to him is that he refinace now (current rate on this mortgage is 6.75), but because money is really tight for him right now, I wanted to see if anyone else had any ideas.
What are the chances that the lender will call the loan due?
Any insight would be appreciated!
how long ago did your brother buy the house?
has he paid down the orig loan a good amount - does he have alot of equity in the home?
about 5 years ago. probably around $15,000 in equity.
what % of the equity is this 15k?
If house is worth 30k, well then he’s got 50% equity?
Also - why would the lender call the loan due? Your brother did not sell the property? If you refinance, the other loan is paid off automatically…
His equity is 15%.
The paperwork says that the home must be his primary residence, it cannot be a rental. This had to do with the government funding source.
His did not sell the house, he just rented it out.
sounds like refi is your best bet, but now he has to refi as investment property; not owner occuiped (i.e. much higher rate).
you need to find the original loan paperwork and read it, but I’m guessing deep in the fine print you will see that not occupy the property is a violation of the loans terms and yes, probably, at the bank choice, they can accelerate the loan and call it due.
Thanks for your help, I really appreciate it.
i might have a solution…does your brother intend to keep this house for more than 5 yrs? if not tell him to get an option arm and he’ll end up paying an apr of like 2.4% maybe lower, he might defer interest but if he is selling then it wont really matter, not to mention his minimum payments are guaranteed
good idea, I will mention this to him. Thanks.