This BLOG On Buying New Primary Home And Renting Exiting Home Was UPDATED And PUBLISHED On November 7th, 2019
The real estate market is hot again despite rising mortgage rates:
- Home Prices nationwide has been increasing the past several years
- Both the Federal Housing Finance Agency (FHFA) and The U.S. Department of Housing and Urban Development realized this and will be increasing loan limits again effective January 1st 2020
- The FHFA is in charge of conforming loan limits
- HUD, the parent of the Federal Housing Administration (FHA) is in charge of FHA Loan Limits
- FHFA has increased Conventional Loan Limits to $484,350
FHA increased loan limits and has not yet announced it will be increasing loan limits for 2020
Loan Limits Increasing Due To Rising Home Prices
Both government agencies increased loan limits due to rising housing prices.
- FHFA has increased loan limits for three years in a row
- HUD has increased loan limits for two years in a row due to housing price increases and is expected FHFA increase for 2019
- Many homeowners who are upgrading to a larger home and/or downsizing to a smaller home
- This is due to being empty nesters are deciding in buying new primary home and renting exiting home
- This is becoming more of a norm now due to escalating home values nationally
Investing in real estate has never been so popular for the first time since the Great Recession of 2008.
Buying New Home And Renting Out Exiting House As Rental
However, there are issues when buying new primary home and renting exiting home.
- Borrowers needs to meet debt to income ratio requirements
- Also, there are strict federal mortgage guidelines when it comes to owner occupant versus non-owner occupant mortgages
Types Of Financing On Owner Occupant Versus Investment Home Loans
There are many instances that homeowners are refinancing their current homes as owner occupied homes.
- Then weeks after closing, they are seeking another home as an owner occupied home
- They are planning on keeping the original owner occupied home as a rental after they close on their first home
- Owner occupant mortgage loans require the least down payment
- Owner occupant property loans also is considered the safest for lenders
- So mortgage rates are the lowest
- Investment homes require 20% down payment
- Investment properties also have higher mortgage rates than owner occupant homes
- Second home financing require 10% down payment
- Owner occupant mortgage loans require 3.5% down payment on FHA Loans
- No down payment on VA Loans and USDA Loans
- 3% to 5% down payment on conventional loans
Buying New Primary Home After Refinancing Existing Home
Purchasing a new owner occupied home after refinancing current home is fine:
- This holds true if the homeowner had a new job offer
- Lenders want homeowners to live in their new owner occupant home purchase for at least one year
- If intent is to mislead the bank or lender then it is illegal
If the intent is to mislead the bank or lender so they can get away with putting down a lower down payment and take advantage of the owner occupied mortgage rates, that is considered mortgage fraud.
Buying New Primary Home As Owner Occupant Home
However, if you recently refinanced your home with the intent of living there for at least a year or more but had a change of heart because you saw a major deal on a much bigger home, then it can be done.
- A good detailed letter of explanation will be required
- I would check with a mortgage lender and explain the circumstances before proceeding
Buying Another Home After Refinancing Your Owner Occupied Your Owner Occupied Home
If you recently refinanced your owner occupied home and are trying to purchase another home and really on plan in living in the new home, you can get a mortgage loan as an owner occupied home under certain circumstances.
- Only if the deal makes sense
- Homeowners who are planning on buying new primary home and the new home is much larger than recently refinanced owner occupied home and did not have the intent on defrauding the mortgage lender
- People change their minds all the time
- It is totally normal to refinance existing owner occupied home with the intent in living there and planning on doing a large room addition
- But later changed their mind and deciding to sell it or keep it as a rental and buying new primary home
On cases like this, it is totally alright.
Using Potential Rental Income On Exiting Home
- Homeowners who have currently refinanced their owner occupied home but need rental income to qualify for new owner occupied home, the lender will require a lease from a renter
- Need at least 25% equity in the home
- Then, 75% of the current rental income can be used as qualified income when buying new primary home
- Homeowners who currently have a conventional loan on an owner occupied home, they can qualify for both a conventional and/or a FHA loan when buying new primary home
- If homeowner currently has an owner occupied home they can use 75% potential rental income on the exiting home to qualify if they have at least 25% equity on the exiting property
- If homeowner is short on the 75% loan to value on the exiting property, they can pay the mortgage loan balance down
So the LTV is 75% if they want to use 75% of the potential market rental income as qualified income.
Distance Requirements When Buying New Primary Home
- If the new home purchase is close to existing home and similar in market value, then it will be difficult to buy the new home as an owner occupied home
- Buyer will need to purchase it as an investment home and the minimum down payment requirement will be 20% down payment
- Second homes require a minimum of 10% down payment
- Need to be at least 60 miles away from primary home
Or the second home needs to be in a resort area such as Disney World or waterfront property.
Two FHA Loans At The Same Time
Home Buyers can have two FHA Loans at the same time only if they need to relocate due to job relocation that is above and beyond travel distance.
- HUD allows for existing homeowners with a FHA Loan to get qualified for another FHA Loan when buying new primary home
- This only holds true if the job relocation is at least 100 miles away or in a different state
- Homeowners recently refinanced their home but had an unexpected job transfer or new job that is beyond commuting distance can qualify for a new mortgage loan on the new property as an owner occupant with a second FHA Loan
Borrowers can have two FHA Loans at the same time with a job relocation that is greater than 100 miles from current home. They do not have to sell the exiting home and keep it as a rental with an existing FHA Loan.
Buying New Primary Home With Contingency Of Selling Existing Home
Homeowners who need to sell their existing homes to get the cash to put down in buying new primary home can contact us at Gustan Cho Associates to learn more about our short term bridge loan program on their exiting home.
Gustan Cho Associates offers a 90 day bridge loan program where we can advance mortgage borrowers the equity on their exiting property so they do not have to have simultaneous closings:
- New home buyers no longer have to place contingency that they need to sell their departing home to get the cash
- Gustan Cho Associates will offer a short term interest only bridge loan
- The exiting property needs to be listed
- Our company will lend the equity in the departure property for 90 days
- Once the property is sold and closed, the homeowner can pay the bridge loan
Home Buyers who need a direct lender with no overlays on government and conventional loans can contact us Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at email@example.com. We are available 7 days a week, evenings, weekends, and holidays.