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If you are looking for a suggestion, mine would be to alert the lender handling your refinance as to your intent. They will no doubt put your refinance on hold. If your contract on the new house is accepted, proceed with the same lender on that purchase loan, locking in as a primary home, they will no doubt convert your current refi to an investment property loan at the prevailing rate. If the purchase does not go thru, flip the refi back to primary. In our disclosure packages we provide a form that lists what is considered mortgage fraud and the associated penalties, you may want to review that at this time. Not only could you get yourself in hot water with this transaction, possible legal problems but you could be placed on the LDP list, which would affect your ability to get financed in the future. This should be considered very serious, not something you want to gamble with and expect a light slap on the hand if you get caught. My 2 cents.
You should have disclosed this information to your loan officers. this may be construed as bank fraud.
There is no doubt that you have put yourself in jeopardy. Based on the FNMA LQI (loan quality initiative) implemented a while back, the vast majority of lenders pull an updated credit report a few days prior to closing to see if you have commited yourself to other debt, that may change your qualifications. Since the lender you’re applying to for the new home will be finding this, they could: A) pull their loan commitment, because your debt ratios are too high or you mislead them on occupancy,(jeopardizing your earnest money deposit), B) offer you terms based on the new purchase being an investment property, at a higher rate and/or down payment, 3)????. On the closing documents for the refi, you certify that you indend to live in that home as your primary residence! When the purchase lender asks for terms of that loan, you will be found out! Unless the rate on your current loan is over 5.5-6%, or less than a 30 year term, I’d abort the refi. If you have a higher rate, like above, or a shorter term loan, I’d change the terms of the refi to an investment rate (probably 4.25-4.5%, based on your 3.875% o/o rate) at 30 years, to maximize the cash flow. If you aren’t planning on keeping that house, either abort or see if you can do no points/no closings costs, if you need to continue the refi. Continuing on the track you are on now could very well jeopardize the earnest money deposit you put in escrow when you signed the contract, AND lose the new house. I’m sure that is a bigger cost than the difference in rates, never mind dealing with your wife’s disappointment of not getting her new home! The moral of the story is, you will get caught, but, what will the penalty be!
5 months ago
Bryan Horn
said:
I’ll take the other side of Bill on this one. In this low rate climate, I believe that the homeowner should get the lowest rate they qualify for. Especially, when this guy IS living in the home currently. He should get the owner occupied rate. How stupid would be feel if the future home purchase never happens? He’d be living in an Owner Occ home with a Non Owner Occ higher interest rate – that is right either…
5 months ago
Jason Harris
said:
@Bryan Horn Bryan…it is simple. They will ask him at closing (or possibly sooner if they re-pull credit although not all lenders do this) on the refi if he has applied for new debt. The answer is yes. He can either lie and possibly “get away” with it or he can answer honestly in which case the refinancing lender will certainly move to treat the home as an investment property.
5 months ago
Harlan Cooper
said:
@Bryan Horn — The original poster said that they have contracted to purchase another home and “plan to rent our current home.” It is mortgage fraud if they do not disclose this information to the refinance lender in order to intice them to make a loan at terms they would not make if they knew this information. They do not qualify for an owner occupied rate if they do not intend to occupy the property.
I’ve been in my current home for (5) years and am refinancing at 3.875% into a 30 year fixed as my “primary residence.” Yesterday my wife and signed a contract putting an offer in on a new home. We plan to rent our current home and move into the new home as our primary residence. Long story short, my refi should be finished in 3 weeks (and I don’t want it to be considered an investment property because the rate jumps up quite a bit). BUT, I want to go ahead and LOCK in a low rate for my new home purchase. I’m afraid that if I have the other bank pull my credit I could be jepardizing my refi. In other words, will the bank working on the refi question my credit pull from bank locking in the rate and pull the plug on my refi? Should I just wait out the refi before I lock my rate and hope for the best??? THANKS GUYS for your input / advice!!