Primary Residence Mortgage Rate, vs Mortgage Rate for Rental Real Estate

[Golden sunsets]

Question for those who have rental real estate portfolios. If a person obtains a mortgage to purchase a primary residence, lives in the home for a few years and then rents that residence(the home is a condo), while obtaining another mortgage to purchase and move into a new primary residence, will that person be able to get the lower primary mortgage rate on the new mortgage, while retaining the preferential primary mortgage rate on the first home?

DS is contemplating doing this, with an eye to eventually establishing a side revenue stream, as the first home is paid off. It is in a desirable appreciating area with rising rental rates and will nearly cash flow from the outset. I wondered if from a credit worthiness perspective, the new bank would object to his having 2 primary mortgage rates, or if the first lendor would claim that the original purpose of the loan is no longer in effect. Would he even have to notify the first lender of the new status?

 

[Another Reader]

Not a problem. The existing lender at this point is probably just the servicer and the loan is owned by Fannie or Freddie. All the new lender cares about is the new property.

The difficulty he may encounter is having the rental income count as income. If the rental is not seasoned, the lender won't include the income. He will need to qualify on the basis of having two mortgage payments and no income on the second property.

 

[Letj]

When you convert a primary residence to a rental, there’s no rate adjustment on that property. The rate on the new property you’re buying as a primary home is based on your credit worthiness and the bank determines how much you can afford on your income (75% of the rental income is added to your income to determine affordability of new primary residence).

 

[euro]

Most lenders do have a seasoning period (typically ca 12 months), or, if you can provide documentation of, say, a job related move or something similar, then you can also move out (and rent the property) while keeping the original mortgage. So this is almost never a problem.
What you cannot do, however, is get a residential mortgage and then rent it out immediately when you never had the intention to use it as personal residence. That is mortgage fraud and can be prosecuted (in addition to the load being called).

 

[Golden sunsets]

Thanks all. This all makes sense.

 

[Golden sunsets]

Most lenders do have a seasoning period (typically ca 12 months), or, if you can provide documentation of, say, a job related move or something similar, then you can also move out (and rent the property) while keeping the original mortgage. So this is almost never a problem.
What you cannot do, however, is get a residential mortgage and then rent it out immediately when you never had the intention to use it as personal residence. That is mortgage fraud and can be prosecuted (in addition to the load being called).

If this person were to refinance the original loan now, for a lower rate, how long do you think a bank would require that the borrower stay in the home before renting it out?

 

[Another Reader]

If this person were to refinance the original loan now, for a lower rate, how long do you think a bank would require that the borrower stay in the home before renting it out?

A year after the loan closes is usually the requirement. Exceptions are made for job transfers and things like that. Realistically, I don't think anyone except the lender on the proposed new property would even think to look.

 

[Offgrid Organic Farmer]

Question for those who have rental real estate portfolios. If a person obtains a mortgage to purchase a primary residence, lives in the home for a few years and then rents that residence(the home is a condo), while obtaining another mortgage to purchase and move into a new primary residence, will that person be able to get the lower primary mortgage rate on the new mortgage, while retaining the preferential primary mortgage rate on the first home?

Yes.

We have done this four times.

A Tri-plex, a Five-plex, another Tri-plex, and a Four-plex.