bethesdawings wrote:Hello! Below is the straight answer from one of our lenders (I am a mortgage broker):

Honestly, not 100% sure. But if everything to you makes sense and doesn’t smell like occupancy fraud (ie. Saying it’s a primary to refi at a primary rate), then I can’t imagine that there’d be any adverse action taken. That lender will more than likely find out when a new homestead is filed. Every lender is different though, and transparency is always a good thing. MUCH better to ask for permission than forgiveness with finances 😊

To me, it sounds like something we can do. We’ll probably want an LOX to explain the point of refinancing as a primary, then 2 months later making it a rental.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:A lot of bad advice above.

The bank has the right to call the mortgage due in full upon learning that the property is no longer owner occupied. Moving out so soon may violate the terms of your loan. Call a lawyer and start an LLC. Get a commercial insurance policy.

You will need to work with the commercial lending department at the bank and the terms they offer will be less favorable than what you are used to. You will need to prove enough income to cover you DTI and may not be able to use future rental income without a signed lease. HOA expenses can screw up your projected cash flow. Get an environmental company to certify your condo as lead free.

Many investors like to say that an LLC is not necessary as long as you buy an umbrella policy. I like to run a tighter ship and my insurance agent didn’t recommend an umbrella policy in lieu of an LLC and neither does my attorney.

Wow, aren't we high and mighty...and wrong. You cannot say that the bank "has the right to call the mortgage". At best that is true in some VERY limited circumstances, although this is very rare in residential mortgages. Owner occupied is usually only a requirement in a reverse mortgage situation. Also, you sound like a 1L or someone who heard their mother talking about business things and heard the words but don't actually understand what they mean (see, LLC, umbrella policy, tighter ship, in lieu, attorney). What in the bloody hell does an LLC have to do with either OP's query or the this situation? Or a commercial insurance policy? Almost all residential policies can have a rental rider attached for a small surcharge. That covers the house without changing policies and the insurer knows you have a tenant. This has nothing to do with commercial insurance. And starting an LLC doesn't do anything unless the house is transferred into the name of the LLC...which of course will cause the mortgage to be called (and incur transfer fees, etc.)

OP: Assuming you didn't commit insurance fraud when you signed the refi paperwork (and it sounds like you didn't because when you refi'd you intended to continue to occupy), and unless your mortgage has a residency requirement for a period of time after closing (very unlikely) you do not need to tell the mortgage company anything. And if they find out, who cares? You did nothing wrong and the loan stays in place. Go apply for a new loan and have two mortgages. Definitely contact your insurer and get a rental rider for the policy (else they could refuse coverage if they can claim it wasn't owner occupied) and require all tenants to carry and provide proof of rental insurance (you want that primary to your policy).

Not a big deal. Do not stress over this. (And for heaven's sake, please don't let people like PP worry you).

Thanks for the personal insult. I am a SFH landlord since 2012...multiple properties. Wife is a Director of Property Management and I have worked in real estate marketing for 15 years.

The question is if you want to do things legally or not. I prefer to run my business in a way that is fully transparent and proper. Let’s take insurance for instance. Riders are usually for short term rentals. Not applicable to to OP situation. But don’t take my word for it here is a citation:

“If you are planning to lease your home to one person or a couple or family for a longer period of time, say six months or a year, you will likely need a landlord or rental dwelling policy. Landlord policies generally cost about 25 percent more than a standard homeowners policy to pay for increased protections. If you are regularly renting out a vacation home or investment property, this would also require a landlord or rental dwelling policy.”
https://www.iii.org/article/coverage-for-renting-out-your-home

You cannot reasonably give blanket advice that a bank will never call a mortgage due under this scenario without knowing the specific language agreed upon. You are also wrong that the occupancy requirement is VERY rare. FHA loans all have occupancy reqs and many other mortgages do too. That is almost 15% of all residential mortgages alone. Once again don’t take my word for it:

“Owner-occupied clauses are a frequent condition found in many primary residence mortgages.”
https://homeguides.sfgate.com/mortgage-require-house-continue-occupied-64388.html

Moving out within mere months of signing a mortgage and converting to a rental is fishy enough that you cannot promise OP hat the bank will not see this as fraud. The bank could make an argument that could be compelling given the exact details of the situation.

Of course the whole point is to transfer ownership of the property into the LLC. That is why I said that you need a commercial loan and insurance policy. What exactly is your point? Why is it so confusing to you what role an LLC plays in real estate investing? That is basic stuff.

In the end you can take the advice of random internet guy with zero citations or random internet guy that linked to sources. I would bet that the above comments dismissing the role of an LLC and proper business practices come from landlords who are trying to save money by skimping on proper legal requirements and want to feel better about their own choices. As I said above I will take the advice of my attorney and insurance agent over that of random internet posts. OP should do the same.

bethesdawings wrote:Hello! Below is the straight answer from one of our lenders (I am a mortgage broker):

Honestly, not 100% sure. But if everything to you makes sense and doesn’t smell like occupancy fraud (ie. Saying it’s a primary to refi at a primary rate), then I can’t imagine that there’d be any adverse action taken. That lender will more than likely find out when a new homestead is filed. Every lender is different though, and transparency is always a good thing. MUCH better to ask for permission than forgiveness with finances 😊

To me, it sounds like something we can do. We’ll probably want an LOX to explain the point of refinancing as a primary, then 2 months later making it a rental.