“Can I Rent Out the Home I purchased with an Owner-Occupied Mortgage?”

Orion’s brokers hear their brokers being asked this all of the time. Yes, the Fed lowered short-term rates earlier this month, but it important for our broker clients to remind their clients that rates are often secondary in importance to changes your borrowers go through. In a climate where rental properties are difficult to find, some homeowners contemplate renting out their current home as a source of income here in the West. But is it okay for your client to rent out the home they purchased with an owner-occupied mortgage?

Experienced brokers will tell borrowers that they need to be aware, when they apply for and sign documents to purchase a home as an owner-occupied transaction, that the documents are being signing state that the borrower will occupy the property. If that is not your client’s intention, then you are committing the commit loan fraud.

There are instances where your client purchases a property they in fact occupy, but later wish to move out and retain the property as a rental property. For instance, shortly after the loan closing, they are transferred by their employer, geographically distant enough that commuting would be difficult or impossible. In instances like this your client has filled the intent to occupy the property and circumstances beyond their control prevent them from doing so. In this case, retaining the residence and renting it out is a possibility. More common is the conversion of their primary residence to a rental after living in it for a few years or more. In this scenario, they can convert the property to a rental property. Ultimately the burden is to prove their initial “intent to occupy” was not fraudulent.

The question then becomes “how long do they have to live here?" There is no defined time frame, only the use of common sense. Did your client purchase in April and move out and convert to a rental in July with no change in employment or other circumstance that would necessitate them no longer occupying the property? Did they retain their prior residence, write a statement that it would become a rental, and then move back into that home not long after closing on their new "owner occupied" home? These are instances where Orion, and any lender, can most likely determine a borrower has violated their mortgage contract, declare default, and proceed accordingly.

There is no specific definition of what constitutes "intent to occupy" being fulfilled. This enables the lender to interpret "intent," which could put any borrower in jeopardy if it is easily shown their intent was not to occupy the property they purchased but to use it as income property.

Orion realizes that life is not constant. Changes occur, goals are re-visited, and adjustments need to be made. We encourage our clients to always engage in an open dialog about intentions, short and long-term goals, and any changes to status. Ask your Orion AE!

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