Link: RealEstateJournal | Legal, Tax, Finance.
Some landlords prefer to seek loans on their primary residence rather than trying to meet the higher standards of a loan for an investment property. For example, if you live in a house, one solution is to locate a new primary residence and apply for financing based on your plans to move into the new property. As soon as the transaction is complete, you move into the new home and convert your current residence into a rental. You'll continue making the same mortgage payments on your current home (which was financed originally based on your occupying the property as your primary residence) and rent the property out.
If you time it right, you may be able to accumulate several rental properties by moving into a series of new owner-occupied homes. The only requirement on the part of a conventional lender is that the property being financed must be your primary residence at the time the loan is approved. You could change your mind the day after the loan was approved and convert the new property to a rental. However, you also could be accused of making a false claim on your loan application. Therefore, it's safer and wiser to move into the new home and convert your former primary residence to a rental as a bonafide change of status, even if only for a few months.
The decision to treat a specific property as a rental or as your primary residence should be based on practical considerations. If you ask your family to move to a property that is poorly located, too small for your needs or too uncomfortable, you're risking personal dissatisfaction and conflict at home. One advantage of moving to a series of newly acquired homes is that you apply the same standards to rentals that you apply to your own home. If you've maintained your current primary residence well, it will be a pleasant place to live. A tenant will be willing to pay a reasonable level of rent based on how well you've cared for the property.
The strategy of financing properties as primary residences and moving from one property to another should be viewed cautiously. You should plan to actually move into the new property to avoid being accused of misleading your lender. Once the transaction is complete, the lender will be satisfied, especially if you continue making timely mortgage payments. When you're established in the new property and you convert your previous residence to a rental, the lender on that home will not care whether you live there -- as long as you keep the property insured and the payments continue arriving on time.
