Buy house, rent it out for a year, then move in-Mortgage options?

vamppireOctober 13, 2008

My fiance and I found a perfect property that we may want to buy (out of state) before we are ready to actually make the move. It's one of those situations where it is unlikely to find the same house/land configuration at the right price again, but we really didn't intend on moving until next year.

We thought about purchasing, but renting it out in the meantime for a year or so while we prepare for the move. I'm new to mortgages - can someone explain mortgage options for this situation? Will that then be considered an investment property and we'd be forced to pay a higher interest? Even if it will be our residence within a year? Would we be stuck with investment loan rates even after moving into the house or could the rate change at that time? I'm so new to this, sorry if these are silly questions!

If we do not rent it out, but choose to leave it unoccupied for a bit until we can make it over there, does that change anything?

This will be our first home and first mortgage. We currently live with family.

Thanks in advance!

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dave_donhoff

Hi Vamppire,

Will that then be considered an investment property and we'd be forced to pay a higher interest?

Yes.

Even if it will be our residence within a year?

Even if, yep.

It has to be personally moved into by you within 30 days of closing the loan, and hten remain in your possession for a year, to meet your represetantions as "owner occupied" for financing purposes.

Would we be stuck with investment loan rates even after moving into the house or could the rate change at that time?

You can refinance as "owner occupied principal residence" when you move in.

If we do not rent it out, but choose to leave it unoccupied for a bit until we can make it over there, does that change anything?

It would actually make it worse, as you'd not only have to finance at investor terms, but would probably have higher insurance premiums for a vacant property.

Hope that's helpful.
Dave Donhoff
Leverage Planner

    Bookmark   October 13, 2008 at 3:45PM
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vamppire

That is helpful, thank you! I don't know anything about refinancing, but I will research that next! :)

    Bookmark   October 13, 2008 at 4:56PM
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justnigel

It's easy to fall in love with the "perfect" place, but there are often many others out there. Sometimes the others are a bit better; sometimes a bit worse...

A house you don't need for a year sounds like a bother to me, but that's just my opinion.

    Bookmark   October 13, 2008 at 5:10PM
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vamppire

There are zero other properties on the market that come close to matching what we are looking for - and that includes what few new properties popped up over the past month since we saw the property. It has acreage and we have a specific want-list for the land, and a limited budget, so we'd much rather grab this than wait potentially years before finding another comparable property we can afford.

I wish there were a lot of properties we could choose from whenever we are fully ready to move - but thats just not the case in our situation.

So we are looking at the options to figure out how to make it work!

    Bookmark   October 13, 2008 at 6:42PM
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dave_donhoff

Vamppire,

If this particular property, and its timing to market, are really this important to you... you may have some other creative options at your disposal, (especially since it is also very likely that the seller is sitting on their thumbs w/o a whole lot of buyer activity at the moment.)

If you are ready & willing to make the payments of ownership for a full year ANYWAY.........

Why not approach the seller & ask for a Lease-to-Buy... or, alternatively, a seller-carried land contract with a sufficient non-refundable down payment (should the seller be uncomfortable with the potential that you could backout of a lease/purchase agreement.)

Going about it this way you can;
A) Avoid paying investor interst rates,
B) Potentially pay even LESS than if you got your own loan (at least for that 1st year,)
C) Avoid paying an additional set of financing closing costs,
D) Qualify for preferential primary residence refinance rates & terms after that 1st year, instead of purchase rates & terms.

This is something you'd likely need assistance from someone experienced in lease/purchase contracts or seller-carried land contracts... not a typical average real estate agent's forte'.

Hope that is also helpful!

CHeers,
Dave Donhoff
Leverage Planner

    Bookmark   October 13, 2008 at 9:23PM
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