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As Obama admin. gives $8000 for first time home buyer, we decide to puchase our first home. However, the first place we open escrow in early July was later found out to have pending litigation with the HOA. Of course, we couldn't get a loan. We were told that a trial date was set on 8/31/09 and mediation would be on 8/20/09. We decided to wait.
However, we further found out from HOA document that the litigation had been for 2 years, and was still unresolved. We became worried. Meanwhile, we found a place in the community where we rented was for sale. We figured if ultimately, the litigation of the first place was to settled, we could still afford both mortgages, if we couldn't rent out the second place. If we couldn't get the first place, we would live at this second place and claim for $8000 credit. Therefore, we made an offer and got the place.
Now it's mid Sept., and based on what we learned, it's impossible for HOA to resolved the litigation before the end of Sept. So we canceld the contract. The 2nd place would become our main residence. While we were processing loan, we found another place that was ideal for us. (the 2nd one is only 1-bed). We won the bidding war, and opened escrow. I told my mortgage broker that we'd like to start loan processing for this new one. We were told if we applied loan for both places at the same time, lender would charge higher interest rate for the 1-bedroom property because it would be regarded as investment property. The problem is, we never know whether we could successfully close on the 3rd one, considering lots of failed sale because of low appraising value, etc. The broker suggested that we could wait until the 1-bedroom closed and then apply loan for the 3rd place.
We are expecting to COE for the 1-bedroom in a day or 2. However, what worries me is that, will new lender find out that our 1-bedroom loan was applied as a owner-occupied property (we actually will move in to this place until we get our 3rd place) and refuse to loan us for the 3rd place? Of course, we'd seek loan from different lender. But I couldn't help but wonder any possibility that may fail us for the loan.
In addition, should we inform the 1-bedroom lender that it would become an investment property once we really get the 3rd place, meaning we close escrow and move into the 3rd place? Will lender regard it as a new loan, or they just need to modify it? Will it cost us a lot? Is it true that if it's a rental property, lender will require landlord/borrower to have it insured (what kind of insurance)? The property is also a condo, and HOA dues cover basic hazard and fire insurance.
The situation, as you post it, is VERY confusing to me -- I am sure most lenders will be confused too.
It is true that rates are higher for investment property. It is also VERY TRUE that lenders can and do reject loan requests for properties that they do not believe will be owner occupied. They generally WILL NOT modify a loan in this situation they will just tell you "we do not want to loan to you for that purpose".
I also think you are kind of nuts to be a FIRST TIME HOME BUYER and attempt to be a land lord at the same time even if you can safely afford the mortgage / taxes / insurance. The exposure you would be taking should the condo market collapse is an enormous risk...
Thanks for the quick response. which part can I clarify my situation?
the 3rd place that we want to live in, will definately be a owner-occupied. the price is more than 3 times higher than the 1-bedroom property. When lender reviews loan application, can they find out whether previous mortgage the borrower have is an owner-occupied one? Also, say, A purchase a house 5 years ago and live in that place. Now A wants to purchase another house and lives in the new one, he need to apply for mortgage, right? I believe he can definately apply for owner-occupied loan for the new place, but how about his old one.
My situation is a little like this. It just happens within such a short time frame. I asked my mortgage broker how we should do. He says it's also his first time having this kind of situation.....
If I have still have a owner occupied mortgage on place "A" and I want to turn it into a rental when I buy place "B" (which I have done several times), the strictest lenders would want me to FIRST refinance place "A", pay the higher non-owner occupied rates, adjust my taxes and insurance and THEN they will finance new home "B".
You are not doing that, you have started down a path to buy TWO places and live in one. Further you are a FIRST TIME BUYER, racing to take advantage of a tax credit.
To be sure the lender can find out that you have applied for a loan on another property, and that fact alone will cause them to seriously question exactly which property will be owner occupied. If you can provide even 6 months of seasoning it would make things MUCH less confusing for the lender(s).
I have helped folks that got married and wanted to retain one of their former residences for a rental while they then sold another and got a larger place to live in together, so these kinds of deals are not absolutely unheard of, but the level of communication really needs to to first rate on your part or you will end up having loan officers VERY upset with you.
Even if you were a seasoned buyer / landlord lenders will not be eager to two loans at once (or very close in time) as their "something is odd" detectors would go off and they would want to be doubly sure that all parties are aware of EXACTLY what you are doing -- believe it or not there are folks that use name changes and wedding when trying to pull a fast one...
It never even occurred to me to contact the lender of my first property, when I decided to turn it into a rental!
My timeline was much longer than the concurrent purchases in this thread, but I had owned my townhouse for more than ten years and was current in my payments - when I found another house that I wanted as my retirement property. I bid on the second property, was approved for financing on it as an owner-occupied loan, and closed with no issues at all. (I had a dependable renter already in place at the townhouse) As far as I was concerned, my payments were current with my first home loan, and there was no need to do anything with that first loan/lender.
I agree that you have to make a choice on which loan would be owner-occupied and have the lower rates - if you have to buy both properties at the same time. If the 1-bedroom is much cheaper than the other property, perhaps just changing the financing of the 1-bedroom to the less favorable non-owner occupied rates would be the best way to go. Do you really want the sale of either of these to fall through, if either lender thinks you are trying to pull a fast one on them?
I understand that. The only issue is that, for non-owner occupied loan, we have to put down 25%. We have that money, but it will almost deplete our reserve fund. I didn't mention this to my mortgage broker, I only told him that we're concerned what if we got no luck closing the 3rd (last) one. We actually ready ourselves for putting down that extra 5%. Then I checked with my mortgage broker, and got an email reply that he was still submitting the 1-bedroom as owner-occupied. (He knows that we're purchasing another house)....
Just checked with my mortgage broker. He said it shouldn't be a problem for us to get a loan for the 3rd place. I mentioned again that we really wanted to get the 3rd place, and we don't mind putting more down with higher interest rate, as long as we could get the loan. He said he wouldn't apply loan from the same lender, and would tell potential lender that we thought the 1-bedroom is too small for us. He sounded quite confident. I hope he's right, as he's an experience mortgage broker. I'll update the outcome. Wish us good luck.
If you can't afford the 1-bedroom, under the terms that the lender would require, you can't afford it.
Personally, I would recommend against getting two separate units, for the reasons I have mentioned -- you would be exposing yourself to an awful lot of real estate risk. Being a new home owner presents plenty of opportunity to ruin your budget and the potential for the "income unit" to be a liability is HUGE...
If you know you are NOT going to occupy the unit and the terms of the loan assume you are you opening yourself up to a major fraud situation. Unlike the "easy to walk away" situation that some people paint when they default on their residence I can tell you that NO LENDER is happy to let some scamming fraud-king investor type walk ...
Thank you for the advice!!
Our main concern is whether we can get our second loan for the last place. The 1-bed loan is not a big deal, and we actually plan to keep it for a long period of time. Being default on this mortgage shouldn't happen, because one of us works in healthcare profession and they rarely lay off people in this industry. We also put aside over 10K for reserve. If being a landlord becomes too much for us, we can always turn to a management company to handle this (found one for our current rental place. reasonable charge, great service). If we lease the one-bed, after deducting tax, HOA, mortgage, there's still around $200 profit. So if we have it handled by management company, it would be break-even for us. We'll definately buy a landlord insurance for the 1-bed and ask our renter to purchase renter's insurance, too.
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