FHA Refinance and Renting Out

Asked by Chattychica04, 20121 Tue Aug 7, 2012

My husband and I have had an FHA loan on our townhouse for 4.5 years. We are way underwater due to the economy so we do not want to sell however we are expecting our first child and we need a bigger home. We started the new FHA refinance process on June 11th, 2012, the date it went into effect. After we talked for a bit we realized we should just try to move and rent out our townhouse. We were suppose to close on the refinance by the end of June. That didn't happen, in fact they messed up our paperwork and we are unable to close until tomorrow 8/8/12. We ended up finding a house a few weeks later and they were in a hurry to sell so we actually closed on a new home with a conventional mortgage on 7/31/12. We will live in our current townhouse until 9/1/12. At that point we will rent it out. I am very worried now about closing on the refinance tomorrow. Our original intention was just to lower the mortgage and then we realized we should just get a bigger home. Are we violating FHA rules?

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12
Sohail Salah…, Agent, Chicago, IL
Tue Aug 7, 2012
Chatty Chica,

Who is your lender? i would discuss it with your loan officer as they can provide you with the best advice and angle to still accomplish your goals.

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0 votes
Erik Sachs, Agent, Chicago, IL
Tue Aug 7, 2012
Sounds like you had the best of intentions going into this situation. You can start the process over or make payments on the commitments you have made. Make sure you change your insurance to non-owner occupant on your rental and let me know if you need help managing it. Good luck!

Erik Sachs
RpV Realty
Cell 773/368-5515
Email esachs@rpvinc.com
0 votes
Gregorio Den…, , San Diego, CA
Tue Aug 7, 2012
Chattychica,

It is available for investment properties, you just have to find a mortgage broker in your area that offers it. Unfortunately, I don't have a referral for you in Chicago, but any experienced broker should be able to assist you.
0 votes
Chattychica04, Home Buyer, 20121
Tue Aug 7, 2012
To specify because this refinance stems from the new streamline process of the June 11th offering. So no credit check was needed and no appraisal was needed. We just needed to be in good standing on our current loan. I have found multiple websites stating that this new streamline FHA refinance is allowed on investment properties. Does anyone know about this?
0 votes
Gregorio Den…, , San Diego, CA
Tue Aug 7, 2012
Closing an owner occupied refinance after you just purchased a new owner occupied home is probably not a very wise move. You can still do an FHA streamline on a non-owner occupied property. I suggest you inform your lender and see if they offer it and if not, you can still refinance with someone that does.
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0 votes
Randy Schule…, Agent, Saint Charles, IL
Tue Aug 7, 2012
Chatty,

I'd agree with Matt Bukovy. Regardless of your original intention, TODAY is a different reality from where you were when you started the process. FHA rules state that their products are designed for owner occupants only. The program once allowed for investors but that practice changed many years ago.

Do the right thing, don't violate your conscience and you'll sleep a whole lot better at night as you settle into your new bigger home.
0 votes
Matt Bukovy, Mortgage Broker Or Lender, Chicago, IL
Tue Aug 7, 2012
You should be very worried. What you are thinking about doing is called mortgage fraud. There are a few tongue-in-cheek responses so far, but let me tell you that now that "The Powers that Be" take such offenses very seriously.

Your current lender SHOULD HAVE been monitoring your credit to see if any new credit has been extended to you (such as a new mortgage) and that SHOULD HAVE killed the deal.

Don't let your lender's incompetence put you in jail.
0 votes
Gregory Moore, Mortgage Broker Or Lender, Chicago, IL
Tue Aug 7, 2012
I would notify your broker and tell them of your situation. You are going to have to sign a document at the closing that says you intend to occupy the property. Since you are not planning on occupying you will be in violation of the loan terms. I dont know the likelihood the bank finding out about the occupancy change but I do know they are doing more research behind the scenes to verify info on the loans.
0 votes
Gregory Moore, Mortgage Broker Or Lender, Chicago, IL
Tue Aug 7, 2012
I would notify your broker and tell them of your situation. You are going to have to sign a document at the closing that says you intend to occupy the property. Since you are not planning on occupying you will be in violation of the loan terms. I dont know the likelihood the bank finding out about the occupancy change but I do know they are doing more research behind the scenes to verify info on the loans.
0 votes
Matt Laricy, Agent, Chicago, IL
Tue Aug 7, 2012
I am sure that you violated the rule if you rent it out. Its up to you if you want to proceed on renting. Most likely they will never find out, but its always a risk.
0 votes
Bill J Delig…, Agent, Naperville, IL
Tue Aug 7, 2012
It sounds like your financial situation has substantially changed since you applied for your refinance. Maybe you still qualify for the refi with your new purchase. Maybe you don't. If you want to find out if you still qualify for the loan, then contact your loan officer and share the news. If you don't really want to find out, then sign the docs tomorrow with your eyes half closed and possibly risk fraud.
0 votes
Philip Sencer, Agent, Chicago, IL
Tue Aug 7, 2012
You probably are in violation of some rules, but it would take you a month to read all the rules and paperwork on an FHA loan. If the lender does a last minute review of your credit/finances they might find out that you have a new mortgage and that would kill your refi deal. If they do not check then you probably will get away with it.
While in theory, you should contact an attorney to discuss your legal aspects of this, from a practical standpoint, people rent out their FHA loaned property all the time. The bank does not pay any attention as long as you pay the mortgage.
0 votes
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