Renting out a Residential

[water_buffalo]

What is the name of your state? VA

We bought a house and planned to live in it. Things happened and we changed our minds. Now we want to rent it out for a couple of years instead, then live in itafter that.

Since we declared to the lenders and everybody that it was a "residence", not an "investment" property, are there repercussions if we rent it out?

Thanks.

[Bigfoot]

No. They don't know and don't care as long as you pay your mortgage loan on time.

[Ellerge]

If they catch you, you're up the creek. Double check and then triple check ALL your mortgage payments to make sure your payments are credited to you and there is NO paperwork mix-up.

[water_buffalo]

What can the lenders/titling company or whoever "they" is do to me if they find out?

Check if it's credited to me? Who else is it possible to be credited to? Paperwork mix-up in what sense?

We already closed on the house.

Thanks for the help.

[tranquility]

They can call the loan for violation of a material term. It is unlikely, but possible. They would rather simply re-negotiate for a rate more in tune with an income property rather than an owner-occupied one.

Info edit:
You will need to talk with your insurance agent as well. The policy you need on a rental is different from the one you need on your home.

[water_buffalo]

Thanks, tranquility.

?- "Double check and then triple check ALL your mortgage payments to make sure your payments are credited to you and there is NO paperwork mix-up."

[moburkes]

What he is getting at is: You want to make sure that the mortgage company has no reason to audit your loan, and then start asking questions. If that happens, and they find out that you do not live there, then they can ask you to pay the loan in full within 30 days. If you do not pay it in full within 30 days, you can lose the house. He is suggesting that you make sure that all of your ducks are in a row.

[water_buffalo]

Thanks, moburkes.

I did what I should've done before posting: read the papers I signed. The part that stood out is that it is actually a federal crime to rent out a residential without telling the lender. I haven't checked yet, but, I'm assuming I'm going to have to shell out a wad of cash to get the loan converted to an "investment" loan. Wad of cash that I don't have.

It also said something about when they take me to court, I'm going to have to pay their attorney bills.

It also said that the lender sends out an inspector within 60 days and randomly for the next year to check that you are not renting it out. Do they really do that?

Thanks for the help.

[tranquility]

The reason for the clause has to do with the resale market. There are certain loans that are guaranteed by a governmental program to encourage home ownership. These loans are not sold at much of a discount because of the guarantee and so the bank get more on the sale. Because of this they can charge less interest and still make the same amount on the sale.

If you qualified for the loan directly through a governmental program, they do often check at the beginning.

[water_buffalo]

Looks like it ain't worth risking.

'appreciate it, tranquility and everybody.

[moburkes]

If you just recently got the loan, then there is more reason to worry. However, people do this intentionally all the time. I cannot tell if you did this intentionally and just came here to see what could possibly happen, or if you really did change your mind after the fact. In either case, its obviously up to you. Call the loan officer. See what they say.

[danno6925]

What you are proposing would probably be considered fraud by a judge if you were to go to court over this. In fact, this was the most common form of mortgage fraud in Pennsylvania during 2005.

However, your position could be argued that since you had the intention of moving in at the time you signed docs, you were not making untrue statements.

The most simple way for them to bust you on renting it out is when your mortgage statements go to a different address than that of the property. Secondly, YES lenders will sometimes send someone out to determine who is living in the home in places like condo communities, new construction duplexes, and other buildings suitable for rentals. The final result is not pretty.

[water_buffalo]

Just the thought of the emotion and logistics aspects of going to court makes it not a very good move to do.

I might call the lender.

Our original plan was to make it an official second home (which is encompassed by the real estate definition of residential, I believe) due to the location of one of our family members. But we figured on just sticking together instead. We're all moving in for sure in the next two years, though.

Thanks.

[danno6925]

We're all moving in for sure in the next two years, though

Who is included in "We"? So long as the proprety is owner occupied, I do not believe the lender can restrict you from taking on relatives as roomates.

Depending on how far you live from the second home (some states have distance requirements) this may very well be a viable option. However, you likely obtained financing based on the underwriter's belief that this would be your primary residence, so you have to be living there in the event of an audit.

One possibility for you - if you're married - is have your spouse move into the home and take up permanent residence there. This would probably satisfy the residency requirement in the event your loan gets audited, or they send someone out to check up on you. If he/she is on the mortgage/deed and is living there, they cannot tell you it isn't an owner occupied property.

If you were to refinance into an investment property mortgage, you will likely see rates that are anywhere between .750% to 1.5% higher, and have to pay all closing costs over again.

[water_buffalo]

We = all of us in the family. Mother, father, kids.

There's a sentence in one of the documents that owner occupied also means second residence.

What if they check and no one's there? Do you think we'll still be in trouble?

Closing costs again? That doesn't sound too good. We'll just leave it vacant and use it as a "vacation" home until we move in.

Much appreciated. Your input.