How to work around the Owner Occupancy Affidavit to buy another home in less than a year?

Question

I am buying a condo. The loan officer told me I will have to sign an owner occupancy affidavit in which I will commit to maintaining it as my primary residence for a year. This is not ok with me since I might buy a house in a year and move there as primary residence + rent out the condo. I have enough cash to buy the condo without a loan, but then won't have enough cash to make 20% downpayment on a house. So I feel kind of stuck between these 2 options:

1. Take loan. can't buy a house because of the owner occupancy affidavit
2. Don't take loan. But now have no cash to make downpayment for a year

What can I do (if anything) so that I am able to buy a house in less than a year and rent out this condo? This is in state of Washington (WA) in USA if it helps.

Answer 1

Danger. The affidavit is a legal document.

Understand the risk of getting caught. If you are planning on using the condo to generate income the chances that you default on the loan are higher than an owner occupied property. That is why they demand more down payment (20%+) and charge a higher rate.

The document isn't about making sure you spend 183+ nights a year in the property, it is making sure that it isn't a business, and you aren't letting a 3rd party live in the property.

If you within the first year tell the mortgage company to send the bill to a new address, or you change how the property is insured, they will suspect that it is now a rental property.

What can they do? Undo the loan; ask for penalty fee; limit your ability to get a mortgage in the future; or a percentage of the profits How likely is it? The exact penalty will be in the packet of documents you receive. It will depend on which government agency is involved in the loan, and the lenders plan to sell it on the secondary market.

It can also depend on the program involved in the sale of the property. HUD and sister agencies lock out investors during the initial selling period, They don't want somebody to represent themselves as homeowner, but is actually an investor.

Note: some local governments are interested not just in non-investors but in properties being occupied. Therefore they may offer tax discounts to residents living in their homes. Then they will be looking at the number of nights that you occupy the house in a year. If they detect that you aren't really a resident living in the house, that has tax penalties.

Suggestion:

If you don't want to wait a year buy the condo and let the loan officer know what your plan is. You will have to meet the down payment and interest rate requirements for an investment property. Your question implies that you will have enough money to pay the required 20% down payment. Then when you are ready buy the bigger house and move in.

If you try and buy the condo with a non-investment loan you will have to wait a year. If you try and pay cash now, and then get a home equity loan later you will have to admit it is a rental. And still have to meet the investor requirements.

Answer 2

Although it may be a little late for you, the real answer is this: When you close on a mortgage for a primary residence you are affirming (in an affidavit), two intents:

• First, you affirm that you intend to move into the property within 60 days (this is why rent-back agreements are limited to 60 days);
• Second, you affirm you intend to occupy that property as a primary residence for 1 year.

Now, these are affirming intentions — not guarantees; so if a homeowner has a change of circumstance, and cannot meet these affirmed intentions, there is almost always no penalty. Frankly, the mortgage holder's primary concern is you make payments on time, and they likely won't bother with any inquiry.

That being said, should a homeowner have a pattern of buying primary residences, and in less than 1 year converting that primary to a rental, and purchasing a new primary; there will likely be a grounds for prosecution for mortgage fraud.

In your specific situation, you cannot legally sign the owner-occupancy affidavit with the intention of not staying for 1 year. A solution would be to purchase the condo as a second home, or investment; both of which you can still typically get 80% financing. A second home is tricky, I would ask your lender what their requirements are for 2nd home classification.

Outside that, you could buy the condo as a primary, stay in it for a year, then convert. If you absolutely had to purchase the 2nd property before 1 year, you could buy it as a primary with a 2 month rent back once you reach 10 months. Should you need it earlier, just buy the 2nd house as an investment, then once you move in, refinance it as a primary. This last strategy requires some planning ahead and you should explain your intention to the loan officer ahead of time so they can properly price the non-owner occupied loan.

Answer 3

Look into the definition of "primary residence" for your jurisdiction(s). In some states, living in the home for 183 days qualifies it as your primary residence for the entire year.

Answer 4

In your particular condition could buy the condo with cash, then get your mortgage on your next house with "less than 20%" down (i.e. with mortgage insurance) but it would still be an owner occupied loan. If you hate the mortgage insurance, you could save up and refi it when you have 20% available, including the initial down payment you made (i.e. 80% LTV ratio total). Or perhaps during the time you live in the condo, you can save up to reach the 20% down for the new house (?). Or perhaps you can just rent somewhere, then get into the house for 20% down, and while there save up and eventually buy a condo "in cash" later. Or perhaps buy the condo for 50% down non owner occupied mortgage...

IANAL, but some things that may come in handy: you don't have to occupy your second residence (owner occupied mortgage) for 60 days after closing on it. So could purchase it at month 10 I suppose. In terms of locking down mortgage rates, you could do that up to 3 months before that even, so I've heard. It's not immediately clear if "rent backs" could extend the 60 day intent to occupy, or if so by how long (1 month might be ok, but 2? dunno)

Also you could just buy one (or the other, or both) of your mortgages as a 20% down conventional "non owner occupied" mortgage and generate leeway there (ex: buy the home as non owner occupied, and rent it out until your year is up, though non owner occupied mortgage have worse interest rates so that's not as appealing). Or buy one as a "secondary residency" mortgage? Consult your loan officer there, they like to see like "geographic distance" between primary and secondary residences I've heard.

If it's HUD (FHA) mortgage, the owner occupancy agreement you will sign is that you "will continue to occupy the property as my primary residence for at least one year after the date of occupancy, unless extenuating circumstances arise which are beyond my control" (ref), i.e. you plan on living in it for a year, so you're kind of stuck in your case. Maybe you'd want to occupy it as quickly as possible initially to make the year up more quickly :)

Apparently you can also request the lender to agree to arbitrarily rescind the owner occupancy aspect of the mortgage, half way through, though I'd imagine you need some sort of excuse to convince them. Might not hurt to ask.