Buying a Home with Owner Occupied Financing After Refinancing Your Home as Owner Occupied

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I’m seeing a trend where home owners are refinancing their current home as “owner occupied” and then weeks after closing, try buying another home as “owner occupied”.  You cannot have two owner occupied homes.   It’s really that simple. 

I’ve had a couple of surprised people contact me who thought they could buy a home just following a refinance only to learn by their mortgage originator that they have to finance the new home as an investment property.   Financing an investment property not only offers a slightly higher interest rate than a mortgage for a primary residence, it also has tougher guidelines with higher down payment requirements and greater reserves (savings).  

If you are considering refinancing your primary residence and possibly buying another home, you should discuss this with your mortgage originator as soon as possible.  You will be signing a deed of trust which has language that you intend to occupy that home for 12 months.  Some folks might feel that the “intending to occupy” means that they can refinance as owner occupied and a couple months later buy “owner occupied” and odds are, they will be caught.  It may be purely unintended for this to happen, but be prepared for the possibility the new purchase to be treated as an investment property, even if you’re going to live there. 

If you’re considering taking advantage of the lower home prices and lower rates, you may want to delay your refinance of your current “primary residence” or talk to your mortgage originator about refinancing your current home as an investment property.  Your next purchase might qualify as a second home, however the property typically needs to be about 50 miles away from your primary residence (the one you just refinanced) and it is the underwriter’s call on whether or not the second home “makes sense”…this can be a real grey area.  

Life happens and we know plans change. Be upfront with your mortgage professional if you’re thinking about buying a home.  You may want to ask them to verify with your personal scenario with an underwriter.  Finding yourself in the middle of a transaction to buy your next home and having it declined as owner occupied can be an expensive experience.

Related post:

Is it a Primary Residence, Second Home or Investment Property

Can I Convert My Existing Home to an Investment Property to Buy My Next Home?

Comments

  1. Does this hold true for Jumbo Loans? I was told that it is only for the fannie and freddie loans.

    • Eric,
      If you are refinancing a jumbo loan as owner occupied with intent to buy another home and rent out the recent refi’d one; it could be considered fraud regardless of if it’s Fannie or Freddie. Have your mortgage originator check with their underwriter.

  2. Rhonda,

    what happens in the case of a “revision of terms”.?
    That would be my case. I did not refinance but 3 months ago I had a revision of terms that brought down my interest rate significantly.
    Does the 12 months rule you mentioned above still apply?
    Thanks!

  3. Alexander Kurdyumov says:

    Hi Rhonda. Unfortunately, I’m one of those people that refinanced 3 months ago knowing that I’ll be buying a new home in 6 months. Unfortunately, my lender didn’t tell me anything about 12 months occupancy. Is there anything that can be done with the new purchase? I plan on selling my current home but new lender says I have to have it as investment loan. Any advise? Thanks.

    • Hi Alexander, when are you planning on selling your home? If it’s listed for sale now, you should be able to buy a home owner occupied.
      Why did you refi 3 months ago if you’re planning on selling the home?

  4. I “might” move back to Texas from New York around the end of October but that may not be possible.
    I rented out my primary residence in Texas after the “temporary” job transfer to NY about 20 months ago. It will still be under lease and thus unavailable if I do return in October.

    I would like to buy something by or before October as Owner Occupied to have a place to live if I do move back. If my job requires I extend another year in NY, that property would have to immediately become a rental. Also, even if I do move in, I would later move into my original primary residence once it becomes available at which point the new one would become a rental.

    Am I just SOL or do my circumstances allow me to do this?

    thanks,
    Monte

    • Monte, you need to check with your local loan officer. IMO the property would be a rental unless you are occupying the home within 60 days of closing and will continue to do so.

  5. Hi Rhonda,
    I have the intention to rent my current property and move to a better school system. To reduce my payment I had to refinance. I have talk to my mortgage people what my intentions are. I have been told that I had to wait couple mounts to ask permission to current mortgage lender that I have fond this opportunity and would like make the move. Is this something you have experienced? what do you think are my options are? (I can not convert my current resident because we already have 3 units rented on my 7 unit condo asc.)
    thanks.

    • alp, I don’t work on the servicing end (I originate mortgages) so I don’t have experience as far as whether or not the mortgage servicer will be okay with you converting your home to a rental after making a couple months mortgage payments. You could always try calling the mortgage servicer prior to your refi and see what they have to say – and I would probably get their advice in writing.

      It sounds like you cannot covert your existing home to a rental regardless because of your condo guidelines.

  6. Hi

    This very issue has come up for me. I’ve lived in my current home for 9 years, and currently have a conventional finance with an additional HELOC. I wish to refinance and cash out to pay the heloc and lock in a lower interest rate. The mortgage originator that I’m currently working with has emailed disclosures to me, the affidavit of occupancy makes no statement about 12 month occupancy. It just says must occupy joke within 60 days.
    I plan on using my VA loan benefit to buy another house. I called the VA to ask questions and the rep said that it does not matter about the other house to the VA. They don’t care. I local lender my realtor recommended said that I cannot legally have two owner occupied mortgages within 12 months. Said its against federal law. But the VA contradicts her.
    I do intend to occupy the current home while I house hunt. It may take me a year to find the home I want so this may be non sequitur. But if I find a great deal in 6 months, I’m confused as to the situation. Will I be turned down for the VA loan by the mortgage company based on regulations that the VA isn’t privy to? The finance agent locally that I spoke to was adamant that I’d have to do the second mortgage as an investment property and that the VA doesn’t do investments (I know this already). Am I right that this 2 owner occupied 12 month clause is null or is she correct?
    Thanks in advance.

    • Hi Heath, it is the Deed of Trust that has the language that you will occupy the home for 12 months after closing. I would ask your mortgage professional that you are working with your preapproval to buy a new home to have your scenario ran by an underwriter. Then, you may have reduced your odds of having issues once you’re in contract to buy a new home. Good luck.

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