Board Topic: Primary Residence or Investment Prop?
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Primary Residence or Investment Prop?

Posted by: Matthew May 3 2004, 03:44 PM
As I shop for loans I have noticed that the interest rates for Investment Property are quite higher than the rates for Primary Residence. Is it common for consumers to book loans as "Primary Residence" to get the interest rates they desire, then turn around and rent out the property? What are the ramifications of doing something like this?

Posted by: loanuniverse May 3 2004, 06:04 PM

You are right about that. I have a couple of friends that have rental properties that they originally financed as their primary residences. I think it is pretty common.

What are the ramifications of doing something like this?

As long as you don’t break any clauses of your mortgage loan, then everything is ok. You have to pay close attention the “occupancy clause” that residential mortgages have. You are usually required to live in that house for at least six months.

Do lenders enforce it? I have never heard of any enforcement, but I am not a residential lender.

In addition, you will probably have to explain the existence of a mortgage loan on your credit report when it comes time to buy another property so it will be a good idea to enter into formal leases with the tenants.

Good luck.

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