Question regarding owner occupancy clause
After completing a refinance, I moved to a new home and rented out the existing home. When I made the change of address with the servicer the system told me that I am under obligation to stay at the refinanced home for a year. Then a week later they transfered servicing of the loan to a new organization. Should I be pro-active and let them know the situation? What could be the consequences. I was under the impression that when you say you need an owner occupied loan that that meant that I had to live there when I did the refinance and as hard as it may be to belive, I didn't read or it didn't register with me that the owner occupancy means you must live there for a year. Also, I was thinking about initiatiing a new refi but for an investment property, could the current servicer block this? I am really concerned about this, I have never broken the law and have great credit and income. Any advice will help.
Thank you for choosing Just Answer. My name is XXXXX XXXXX X will assist you.
Owner occupancy typically requires a 1 year commitment as your lender stated. If you purchased the home knowing you would be leaving right after the mortgage was approved this could be considered "owner occupancy fraud"
Owner occupancy fraud occurs where the borrower obtains a mortgage to and states on the loan application that the borrower will occupy the property as the primary residence or as a second home. This is done to get a lower interest rate and a lower down payment requirement. A lender is able to charge the lower because the default rate is lower on owner occupied properties.
If this was your intent then you have defrauded the lender. The owner occupancy rules can be waived if you have a good reason for not occupying the property e.g. a new job more than 50 miles from the property, or marriage where you will be living in your spouses home. You have to request the waver from the lender.
With respect to refi a different property the new lender will not explicitly block the transaction. Your new re fi lender will check your credit reports and see which loans are outstanding and whether you are current on the loans. They will not check the terms of other notes that you have with different lenders.
As far as penalties, if fraud is determined multiple options are available 1) the loan can become due immediately; 2). The lender could negotiate with you to redo the loan with the appropriate interest rate and down payment. 3) their may be penalties outlined in your note or mortgage.
You should be aware that mortgage fraud can lead to criminal charges. It is unlikely the b bank will pursue this for a single instance. If you have a practice of doing this then you may have a problem..
Your best bet is to live in the house for the 1 year time frame and rent out the other property you were considering purchasing.
Thanks, XXXXX XXXXX last question, if the loan becomes due immediately, would I have time to refinance? Again, this is the only time this has been done and it was an over site on my behalf.
Yes, the bank doesn't want you to default. Any legal action would take months to complete and be defeated by your moving into the property. You could also try to re fi the loan with the existing bank to see what can be done. I would also talk to them about getting a waiver. In your discussion with the lender indicate you wish to move, and want to know what they require for that to happen. In some cases it may be a payment of some sort.
Unfortunately at this time I have renters who have been paying on time and they have a year lease. I've never been late on a payment, have more than 20% equity in the rental as well as my current and have over 6 months reserves to make both mortgage payments.I hope that they consider this when I address the issue with them. I'd be happy to refi at the appropriate rate.
I am sure the lender will work with you, as what they do not want is a defaulting borrower.
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