Purchasing another home as primary residence after refinancing on current primary residence

Three months ago we began looking to purchase a bigger home as our primary residence. Our current home is a bit too tiny for our family now and we planned to rent it out. At our real estate agent's suggestion, we refinanced our current home loan to get a better rate and to lower the monthly payment. Sounded like a good idea to refi with a lower rate as owner occupied and she did not mention that there would be an issue purchasing another home later as a primary residence. We closed the loan 2 weeks ago and noticed that there was a clause that stipulates home must be owner occupied for a year. That threw us off a little as we have placed an offer on a short sale 2 months before the refi. Now we are wondering if we can purchase this home as a primary residence or would we be in trouble with the bank who issued the refinance on our current home? Funny thing is we were up front about this to the loan broker who took our refinance application and she did not say this would be an issue.

1 Answer

The issue you are running into stems from Fannie Mae Automated Underwritting system which is flagging your new loan because you have financed a your current property within the last 6 months as a primary residents. Due to this, the system is tell the lender that you maybe committmenting fraud due to multiple primary residents applications within the last 6 months, which you signed documentation in the refinance that you expected to reside in the home for at least 6 to 12 months. I don’t think you are trying to pull a fast one on the lender but that is why it is being flagged by lenders using AUS.

The options for you are to look for a lender that provides a profolio product and will not use an automated underwriting system, or you can wait six months from the date of the refinance loan was sold to Fannie Mae, Freddie or FHA, and start looking for additional properties. Some leaders may allow you to write a letter of explanation but with the possible of the lender having to buy back the mortgage is higher than traditional, which make it unlikely you will be able to secure financing under any loan back for fannie, freddie or FHA unless you finance the new home as an investment property