Many homeowners who need to make a move may be reluctant to sell their homes because they have a low interest rate and will pay a much higher price for their next home, as well as a higher interest rate in today’s market.
Renting out an existing home and buying another property is an attractive option—if you play fairly with your lender. Some purchase loans aren’t available to investors—such as FHA and VA-guaranteed loans—and are only for owner-occupants, while investment property loans require larger down payments and charge higher interest rates. Trying to buy a property while hiding the fact that it’s a rental could result in your loan being called due.
You can buy a home with owner-occupied financing and turn your home into a rental with little risk of penalty if you do the following:
- Occupy the home for at least 12 months, as agreed in the loan documents. Frequent applications for new owner-occupied financing every few months will make underwriters suspicious.
- Use the same mailing address as the property.
- Be prepared for lender scrutiny with a logical explanation, such as a job change, or moving closer to family, if you have other, nicer properties and seek owner-occupied financing for a lesser quality home.
- Don’t refinance your owner-occupied home to pull out equity to use as a down payment on the next home and then finance your next home as an owner-occupant unless you intend to actually occupy the home for 12 months or more.