Refinance - Lender Writing my Primary Residence as "Investment Property" I'm Confused? (insurance, loan officer)

[702Maverick]

Hi all,

So, this is my first post in here, but only because I didn't belong to any real estate forums prior to this. I have a real & legitimate question and don't know where to turn.

I am refinancing my primary residence through RoundPoint, locked in a rate of 3.125% 30 days ago, and now my lender is telling me that they are going to treat my residence as an "investment property" and bump my rates up to 3.375%. They have also allowed my 30-day lock to expire and I don't even know if I'll get either of those rates now.

The lender has pointed out to me that my tax forms for 2012 indicate that there was rental income for this property as well as another property of mine (the 2nd property is indeed an investment property). After looking at the page in question (Schedule E) it appears that my CPA used expenses incurred in a remodel of my primary residence to offset some of the income derived from my investment property.

Now, my issue here is that the property that I am refinancing is indeed my primary residence and I have lived here as such since mid-2010. I do not rent the property out, and it is not my intention to rent the property as an investment property.

What really matters here, the tax form? My "intent"? Or what?

1) If this is an “investment property," then it would leave me without a mortgage for a primary residence.
2) I have continuously held a condo owner’s insurance policy since I became the owner of record on this property.
3) The title of this property is in my personal name, and not under any of the LLC’s that actually own any of my investment properties.
4) The tax return is for 2012, which is now 11 months in the past. Any rental income on this return shouldn't even apply as it is aged information.
5) My personal mail is received at my primary home address.
6) I can go as far as proving my entrances and exits from the property through the use of my key FOB.

Looking forward to some help clarifying this, and any assistance is much appreciated!

Thanks!
Dan

[thelopez2]

Originally Posted by 702Maverick

Hi all,

So, this is my first post in here, but only because I didn't belong to any real estate forums prior to this. I have a real & legitimate question and don't know where to turn.

I am refinancing my primary residence through RoundPoint, locked in a rate of 3.125% 30 days ago, and now my lender is telling me that they are going to treat my residence as an "investment property" and bump my rates up to 3.375%. They have also allowed my 30-day lock to expire and I don't even know if I'll get either of those rates now.

The lender has pointed out to me that my tax forms for 2012 indicate that there was rental income for this property as well as another property of mine (the 2nd property is indeed an investment property). After looking at the page in question (Schedule E) it appears that my CPA used expenses incurred in a remodel of my primary residence to offset some of the income derived from my investment property.

Now, my issue here is that the property that I am refinancing is indeed my primary residence and I have lived here as such since mid-2010. I do not rent the property out, and it is not my intention to rent the property as an investment property.

What really matters here, the tax form? My "intent"? Or what?

1) If this is an “investment property," then it would leave me without a mortgage for a primary residence.
2) I have continuously held a condo owner’s insurance policy since I became the owner of record on this property.
3) The title of this property is in my personal name, and not under any of the LLC’s that actually own any of my investment properties.
4) The tax return is for 2012, which is now 11 months in the past. Any rental income on this return shouldn't even apply as it is aged information.
5) My personal mail is received at my primary home address.
6) I can go as far as proving my entrances and exits from the property through the use of my key FOB.

Looking forward to some help clarifying this, and any assistance is much appreciated!

Thanks!
Dan

You need to ask RoundPoint to fix it. No one here can turn back time to get your old locked rate.

[702Maverick]

I understand that. I guess my question here is whether or not I'm being taken advantage of by RoundPoint Mortgage? I feel like the loan officer at RoundPoint is pushing for the new rate because they didn't want to honor the old one and it may be a push comes to shove type of situation, which I certainly don't want. I worked hard at this entire thing. My credit score is about 800, I'm being completely honest with my RoundPoint mortgage application, have provided everything they've asked for, and here I am feeling like I'm being taken for a ride.

So, does anyone know the official ruling of how primary vs investment is determined? If I were to have a roommate for instance, and receive rent for that room, would that count as an investment property? Or how about a more extreme example, lets say I rent my garage out for $30/mo, is that considered an investment property?

Thanks for all your help!

[manderly6]

They are going off your tax return. Seems pretty reasonable. Imagine if all you had to do was say it was a mistake many people would do that. What did your accountant say? My somewhat educated guess is that you need to refile your taxes and correct the mistake. This probably fixes two problems. The first being possible tax fraud and the second being your mortgage issue.

[SmartMoney]

Couple of random thoughts, please don't take any personally.

If your primary shows as an investment property on your 1040s to offset income from an investment property, it has a history of being an investment property. Are you saying your taxes are wrong? Or are you saying, okay, in the past it was an investment property, but now that you are refinancing it, it's not? Does your 2011 return show the subject as an investment property? Typically, in mortgage banking, the track record is what is used to indicate the future. I've refinanced investment properties as owner occupied properties previously, but it was addressed up front, and as the loan came in the door. Memos all over the file from the beginning of the loan app - with documentation that screams, "yes, I use to rent this place out, here's the expired lease, the tenants notice of moving, my HUD from the sale of my residence, and these are the reasons I am doing this." Everything in the file must make sense, but if it's not addressed front and center and is picked up by the underwriter that the subject was used on Schedule E, no way could I proceed as an owner occupied property.

If your home has never been counted as a rental, I would be more concerned with my accountant, this is an invitation to an IRS audit. If it is a rental (even renting a room, for example) and the income is still showing (regular deposits into your bank account), you are fighting a losing battle.

Guidelines have tightened to their most restrictive since I have been in the business. Along with the tightening, mortgage fraud is at its all time highest, with occupancy fraud taking the number one spot.

But from your list:

1) doesn't matter, many people rent their primary, live with SO elsewhere, and maintain investment homes.
2) this only means if you had it as a rental, you didn't have the correct insurance policy (ie, not proof of occupancy)
3) again, this does not serve as proof on the subject property
4) file your 2013 returns as early as possible, removing the home from schedule E
5) again, not proof, when someone leases their owner occupied home, it's done with the tenant collecting their mail.
6) who's to say someone isn't using your keyfob?

I am not doubting you, but simply showing the argument from the other side. I would be curious to know:

1) are the 2012 returns incorrect? was it never a rental?
2) what address was used as your filing address on your tax return?
3) is this something that was addressed upfront, at the time of loan application?
4) what address is on your driver's license?

Your situation can be fixed, but depending upon how things played out with the lender will determine if your lock is extended. If it was something they "discovered," I would not be optimistic of the lock being held over. Any experienced loan officer would have picked this up from the beginning........however, if you were shopping the best rate, your loan officer was most likely a glorified order taker that can only accommodate square pegs that go into the square box.

Your best bet is to wait until 2013 returns are filed and discuss the expenses listed on 2012 with your accountant to make sure you didn't set off any audit alarms on your 2012 returns. (Like count expenses as an investment home for your primary residence).

[thelopez2]

Originally Posted by 702Maverick

I'm being completely honest with my RoundPoint mortgage application, have provided everything they've asked for, and here I am feeling like I'm being taken for a ride.

So, does anyone know the official ruling of how primary vs investment is determined? If I were to have a roommate for instance, and receive rent for that room, would that count as an investment property? Or how about a more extreme example, lets say I rent my garage out for $30/mo, is that considered an investment property?

Thanks for all your help!

You were honest with them and your loan officer failed to manage your expectation and the application process, move on, you can change lenders just out of principle.

Your points are valid, it is up to the underwriter and their lending guidelines. It is possible that their description of investment property trumps owner occupied loans to reduce their risk , but no one else can speak for them. There is no reason that your LO or UW can't address these what if, people rent out rooms all the time and still live at home.

To be painfully blunt , it sounded like you committed tax fraud knowing or unknowingly. People wonder why underwriting is so hard on people now.


Not that it really matters, did you claim income on your schedule E for the primary residences?

[jlcam37]

I agree. Your acct shouldn't b changing things that may invite red flags. The lender shouldn't back out on a locked in rate either. Watch out for junk fees. Get 3 quotes from different ones and go w the best one.