Question about owner occupy pertaining to mortgages

Hi all. Nice forum. First time poster, REI beginner.

I plan to get into the REI game in roughly 2-6 months. I just finished reading Investing in Real Estate by Eldred and the initial path I plan on taking is buying 2 or 3 duplex’s 1-2 years apart and owner occupy them. Eldred states some of the benefits to owner occupancy in his book (lower rate, when you move out the mortgage stays the same, benefits to you being on-site, etc) but doesn’t really expand on it too much. He states it’s the safest, lowest cost, best way to start out but then spends two pages on it (my biggest complaint about the book…otherwise pretty decent). Anyway these are some of the questions I have now:

  1. Does owner occupy lower the rate on all loans, even FHA mortgage? Do you pay PMI on FHA loans? If you have plenty of money for a conventional loan, is there any reason to get an FHA loan?

  2. I plan on holding onto these duplex’s for the long term. What type of loan would you recommend?

  3. How many times can you go back the a lender and claim owner occupy for a loan before they say that’s enough?

  4. I read on some site that if you owner occupy a property for 2 years and own it for at least 5 years that you don’t have to pay capital gains on it when you sell. True or False?

  5. If I move out after a year and say 5 years down the road want to refinance (for whatever reason), that owner occupied status/lower rate would be lost right?

  • Sorry, not sure if this question even makes sense but I’m curious if anyone knows.

OK, I have lots of questions on mortgages and owner occupancy. Any reponses or reading material recommendations is appreciated. Thanks.


I will try to answer your question in the order that you asked them. Please consider that these are my opinions only and they are worth every penny that you paid for them. :wink:

  1. Owner occupied loans typically are 1% less than equivalent investor loans for the same property. I believe that this is true of conventional as well as FHA loans, but I have never had a FHA loan, so I am not sure. PMI is typically paid on all loans that the owner has less than 20% equity in the property. I cannot answer your question about getting the FHA loan.

  2. I would recommend that you get a fixed rate loan if you are going to hold the properties long term. The reason that I would recommend fixed rate is that you know what your payment is going to be throughout the life of the loan. No surprises. Current mortgage rates are close to a 50 year low (they have gone back up some). I do not think that it is possible for them to go much if any lower. Chances are that rates will go up. An ARM would also go up if they do which would increase your payment. Fixed rate are more expensive to get right now, but you have the peace of mind of knowing that they will stay the same.

  3. Theoretically you can go back to the lender for owner-occupied properties any number of times, but they do have to be at least 2 years apart.

  4. As far as paying capital gains, a duplex or a triplex are handled differently than a SFH. Current laws exempt you from capital gains taxes on a residence that you have sold in which you lived for 2 out of the last 5 years. Since you only lived in half of a duplex, only half of the price of a duplex would be exempt. You probably need to talk to an accountant for the specifics.

  5. Yes. You are no longer living in the property, so it is no longer owner occupied.



Thanks for the clarifications and advice Wilson.

So really there is no way around PMI if you’re under 20% on a loan. I no there are lots of variables that go into figuring how much your PMI is, but in general does it make sense to highly leverage properties. Putting only 5% down on a property could give a better rate of return on your initial investment compared to 20% down, but how much does PMI take away from that?

Howdy Thug:

PMI stands for private mortgage insurance. FHA and VA are not private so they do not have PMI. Both HUD and VA insure the loans or parts of the loans. If default they will usually pay off the loans and take ownership of the properties and market them instead of paying the % that they insured. At least this is how I was taught the system works.

You may be trying to over analyze this. Just get some property in your name and start



FHA has MIP…this is the term that is used by FHA. It works similar to PMI, just named differently. Just to clarify, VA does not charge PMI or MIP, but rather an upfront fee at closing. As a general rule FHA only allows one loan per borrower at a time. As for the capital gains tax, I think it depends on what state you live in.