Hi folks,
Newbie question again. Say you convert your primary residence to a rental, where you have existing mortgage. Does that automatically affect the mortgage rates? Or do you need to tell your mortgage co that you’re renting it out so they can apply higher rates?
If not, what stops one from buying a place as primary, live for few years and rent it out later?
The loan docs will specify how long you need to live there as a primary. I can’t remeber how long it is, but it’s not too long. You don’t need to do anything if it’s after that period. If you refinance after it’s a rental, then you’ll have to pay non-owner occupied rates.
No impact to mortgage rate unless you refinance as @marcus335 noted. I believe the typical loan doc requires you to live there as a primary for at least a year. Nothing is stopping you from converting your primary to a rental down the road.
Ah nice. I just checked our loan docs, looks like I’m good then. Thanks for the quick info!
That’s actually one of the nicest way to do rentals. buy, move in, move out, rent. rinse and repeat.
Here you go, lot of rules.
Take your promissory notes (just 6-7 pages). It will normally says you need to take possession of property within first 60 days and live there minimum 12 months from start of mortgage process.
I do not know whether you have ARM or fixed. If fixed, you are smart. Rates does not change. You do not need to inform bank/lender etc.
If you have taken ARM, and later when you look out for refinance, your rates are 0.75% (or 0.5%) more than at that time market rate for primary.
What stops one from buying a place as primary, live for few years and rent it out later ==> When convert primary into rental, and trying to buy new home, lender will combine both mortgages (and liability) and evaluate your eligibility.
If you tell them, your home may rent $3000 they won’t take it, but will ask you to get firm contract with cashier check of rent+deposit put into your account, realized it, show the receipt ! Even in that case, you comply everything, they take 75% of rent ($3000 contracted) as your income and recalculate eligibility.
You need to have the cash reserve for 6 months (or 12 months) to cover both home mortgages.
In order to qualify for both the mortgages, your income+75% future rent must exceed DTI (Debt to income) 43% and strong cash reserve must be there.
Just go though concise version of complex formulae
https://www.fanniemae.com/content/eligibility_information/eligibility-matrix.pdf
Thanks for the detailed info!
Yes, given the competitive market here, going through that exercise when getting another mortgage would be a huge ordeal. 
Yes welcome to my world - the moment when you realize you are poorer than you think…
Always take the $500k tax free…As often as you can…I have done it several times…The fastest way to get rich. Unless you believe in the bitcoin tooth fairy
Didn’t you say you wish you’d never sold any of the RE you owned though?
Not possible. Can’t beat tax free money. Always need to reallocate. Some of that tax free money from the BA has been better deployed in Tahoe. Of course buy and hold is ideal. But 1031s and the $500k deal he’ll.
My business has been flipping since 1976. The $500k freebie made that business a lot more lucrative. It won’t be around forever…
If this was directed to me you forgot that I only get $250K tax free.
Am I needed for a tax write-off???
I am again confused, leaning towards renting than tax free gain. All gains go to book profit (not realized), but Cash-out refi, 30 year fixed rate, prop 13 makes it positive cash flow day one.
Make your own choices. But I rarely got the full $500k
But I still think that tax free profit can’t be beat. I also think in the long haul sfhs are not the best investments. 1031 in higher caps if you can’t take the freebie.