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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127673  
Subject: Re: question: down payment on my first home Date: 5/16/2013 12:58 PM
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I want to be clear: All I want is to have the OPTION of renting my own property at any time after purchasing it. That's it.

Well, you have some choices you can make then.....

- You can get an investor's loan, and rent it out from day 1, no issues

- You can get an owner/occupant loan and meet the occupancy requirement your lender imposes, and then you are free to rent it out after that clause is met (Note: if you have to travel on business, but don't rent the property out and are still using the home as your primary residence, you would be fulfilling the terms of the occupancy requirement, as it would still be your 'primary residence' even though you aren't physically there)

- You can get an owner/occupant loan and, if you haven't met the terms of the occupancy requirement when you want to rent it out, request in writing that the lender waive the terms of the occupancy requirement. If they waive the terms, then you are fine to rent it out. If they do not waive the requirement, you won't be able to rent it out until you meet the terms of the occupancy requirement.

And I only have ONE (once I purchase it), so I am not trying to disguise an investment as a residential purchase.

But you don't seem to know what you want this house to be - your primary residence, or a rental property. If you want to be able to rent it out starting on day 1, then it IS an investment property. If you are willing to wait until the terms of the occupancy requirement are met or waived until you rent it out, then you are buying it as an owner/occupant. So which is it? Once you determine that, you can determine which kind of loan you need to get.

Please keep in mind, as Dave said - nobody is forcing you to borrow the money. It's your choice to borrow the money so that you can purchase a house. If you want to borrow the money, you need to be willing to borrow under the terms that are being offered.

That is the problem with our society nowadays. We are so used to being stepped over by banks that we find it "okay" that they make all the rules to protect themselves from us with their army of lawyers and lobbyist and people checking up occupancy. In the end who cares if they FAIL? We would just bail them out again, right? All back to normal, no problem! On the other hand a low-middle class individual with little money to spare trying to modify a contrat that is inconvinient for his personal situation is seen as "trying to commit fraud". Amazing! I say if they make rules that are convenient for them, we need to push so that the contract is fair for us as well. But sadly this country lost its ability to strike and protest a long time ago.

Banks have always been willing to lend money to those who don't need to borrow money. And they usually have pretty good payback rates when they do that, because the borrower didn't actually need to borrow the money.

It's when banks start lending money to those who need to borrow money that they run into trouble, since the likelihood of the bank getting paid back as agreed diminishes as the borrower's 'need' to borrow money (rather than funding it themselves) increases. And that's part of what happened in the most recent financial crisis. If you could fog a mirror (and sometimes if you couldn't), you could probably find a lender who was willing to give you some kind of a 'no-doc' loan. The easy money created an asset bubble, driving housing prices up to levels that couldn't be sustained once the money supply started to tighten.

The current lending environment, where banks are reluctant to lend money to those who need it is the result. Eventually the pendulum will swing back to where money is easier, although I hope it doesn't get to the excessively easy money that occurred during the real estate bubble.

I think there is a lot of pessimism here on our ability to get rid of the "occupancy" clause in the document. I believe that every document can be legally modified before signing it, just that most people don't take the time to do so and don't believe in their own ability as an individual to confront a bank or a company.

You can try all you want, but if you want a 'conforming' loan, you won't get the occupancy clause changed unilaterally. That is because the lender won't be able to sell the loan to Fannie or Freddie if they waive the occupancy clause. If you go to closing and refuse to sign the contract without changing the occupancy clause, the lender will not fund your loan, and you won't close. You can try, but you need to be aware that you risk losing your earnest money if the only reason you don't close is because you wanted to change the occupancy clause.

Any 'non-conforming' loan (investor, portfolio, hard money, jumbo, etc.) is going to either (1) have a higher rate, (2) require a higher down payment, (3) have higher fees or (4) some combination of the other 3 items. This is partly because it's a specialty loan instead of a mass-produced loan, and partly because it's generally a riskier loan from an investor's standpoint.

AJ
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