How do you get around owner occupancy?

Lending companies cannot force a homeowner to live in a home when they have legitimate reasons –– or even desires –– to move. However, to get out of the owner-occupancy clause on a primary residence home loan, the owner should be able to prove that they had every intention of occupying the home at the time of purchase .

What is intent to occupy as primary residence?

A letter of intent to occupy is a concise legal document that you write stating your intention to live in the home you're mortgaging as your primary residence . Your primary residence is important because it ties directly to certain tax benefits and usually a better mortgage rate.

Can you convert a rental property to a primary residence?

For example, if an investor decides to transform their rental property into their primary residence, they can do so if they follow the rules . The primary stipulation from the IRS is that the investor must maintain the property as a rental for at least two years following the exchange.

What makes something your primary residence?

Your primary residence (also known as a principal residence) is your home. Whether it's a house, condo or townhome, if you take up occupancy there for the majority of the year and can prove it , it's your primary residence, and it could qualify for a lower mortgage rate.

Live In Your Own Rental Building And Call It A Primary Residence (2024)

In this article:

Owning a rental property and living in it can be a great way to reduce your monthly mortgage payment.

When you purchase a 2-unit, 3-unit, or 4-unit home, it’s your right as a homeowner to live in any of the home’s available units.
Qualifying for a loan will vary depending on the mortgage you use to finance it. In general, mortgage lenders allow just 75% of a home’s total rental income to be claimed on a mortgage application because rental homes do become vacant. This means that for every thousand dollars in rent collected, $750 can be used on your loan application.
The mortgage approval process when you buy a rental property as a primary residence is similar to when you buy any other home. Your lender will require proof of income and assets; evidence of employment; and, a credit score which meets program minimums. Making a down payment is also required for nearly all loans.

You can live in your rental building

Did you know that you can actually live in your real estate investment property?

Owning a rental property and living in it can be an excellent way to reduce your monthly mortgage payment outlay, while building .

And, you can even do it as a first-time home buyer, if you plan ahead. The key is to purchase a home with 2-units, 3-units, or 4-units — none more, and none less.

Homes with 2-4 units can be financed as residential mortgages, which means you get access to “regular” mortgage rates; and properties can be purchased no matter when you’re currently renting a home or owning one.

You’ll also get access to larger loan sizes because loan limits for multi-unit homes are higher than for 1-unit properties.

In Seattle, Washington, the maximum loan size for a single-family home is $540,500. But, if you were to buy a 4-unit home with plans to live in one of the units, you could borrow as much as $1,039,450 instead.

Rent your home and call it “primary residence”

When you purchase a 2-unit, 3-unit, or 4-unit home, it’s your right as a homeowner to live in any of the home’s available units.

For many homeowners, living in a multi-unit rental building is a way to defray, reduce, or eliminate the monthly cash outlay to their lender. Rents collected from the home’s other units offset the payment due on the primary one.

Owning and living in a rental building is allowed by mortgage lenders and, according to mortgage lending guidelines, when you live in a building you rent out, the entire property can be classified as your primary residence, which gives access to lower mortgage rates and potentially larger monthly profits.

In addition, renting out a building in which you live grants you access to a wider range of mortgage products.

When you live in a 2-4 unit building and rent the remaining apartments, you have access to loans via the FHA, via the Department of Veterans Affairs (VA), and via Fannie Mae and Freddie Mac, including .

However, qualifying for primary residence rental building loan will vary.

Collecting rental income on a primary residence

Purchasing a multi-unit rental property to use as your primary residence has its benefits, both in terms of short-term, cash-flow profits; and, long-term gains of equity.

However, depending on the mortgage you use to finance it, qualifying for such a loan will vary.

In general, mortgage lenders allow just 75% of a home’s total rental income to be claimed on a mortgage application because rental homes go sometimes vacant. This means that for every thousand dollars in rent collected, $750 can be used on your loan application.

After that, mortgage guidelines diverge and, because of these difference, you may find that you qualify for an but not a Fannie Mae loan; or, for a Fannie Mae but not a VA loan.

A Fannie Mae lender, for example, will subtract rents collected from your proposed monthly payment and use that figure as part of your .

By contrast, to find your DTI, a VA lender will add the rents collected to your total monthly income, and leave your proposed monthly payment unchanged.

These two approaches are drastically different and, because of how DTI is calculated in each scenario, it becomes a lot easier to get approved to live in a rental property when you’re using a conventional mortgage via Fannie Mae as compared to a VA loan via an approved VA lender.

Both options are worth considering, though, because VA mortgage rates can be lower than conventional rates , which can increase the profitability of your rental.

Downpayment requirements for primary residence rental properties

The mortgage approval process when you buy a rental property as a primary residence is similar to when you buy any other home.

Your lender will require proof of income and assets; evidence of employment; and, a credit score which meets program minimums.

Making a down payment is also required (unless you’re using the VA mortgage, which )

Here are the minimum downpayment requirements for some of the mortgage programs you may want to use to finance your primary residence / rental home:

VA loan: No downpayment requirement, no mortgage insurance required.
FHA loan: 3.5% downpayment required. Credit score minimum of 580.
Freddie Mac Home Possible: 5% downpayment required. Must meet income standards.
Conventional loan; 15% downpayment for 2-unit; 25% for 3-4-unit

Note that the VA and FHA offer various programs to buyers of homes including the Energy-Efficient Mortgage and the , respectively.

Both can be used in conjunction with your “standard” loan product.

What are today’s mortgage rates?

Buying a rental property as a primary residence can help you build your real estate portfolio faster and more efficiently than purchasing properties one-by-one.

Get today’s live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.