How Long Must I Live in My Primary Residence Until I Can Legally Turn It into an Investment Property?

Mortgage

November 05, 2024•3 min read

How Long Must I Live in My Primary Residence Until I Can Legally Turn It into an Investment Property?

Short Answer: Generally, one year.
Most mortgage lenders require you to live in your primary residence for at least one year before you can convert it into a rental property. This rule applies to most conventional and government-backed loans.

Let’s dive deeper into the reasons behind this rule, the requirements for different loan types, and tips for transitioning your property to an investment.

Why the 1-Year Occupancy Rule?

When you apply for a mortgage on a primary residence, lenders offer lower interest rates and down payment options compared to investment properties. These favorable terms are offered because primary residences are seen as lower-risk investments. Requiring borrowers to live in the home for at least a year ensures they are genuinely using the property as a primary residence, not as an immediate rental or investment property.

Loan Type Requirements for Primary Residence Occupancy

Here’s a breakdown of occupancy requirements by loan type:

1. Conventional Loans: Most conventional loans require you to live in your primary residence for at least one year before turning it into an investment property. After the one-year period, you’re typically allowed to rent it out if you wish.

2. FHA Loans: FHA loans also require that the borrower lives in the property as a primary residence for at least one year. After this period, you’re permitted to rent it out or convert it to an investment property if needed. Keep in mind, however, that FHA loans are designed to promote homeownership, so if your intention is to invest, this may not be the best loan type for you.

3. VA Loans: VA loans require primary residence occupancy within 60 days of closing and also have a one-year minimum occupancy rule. VA loan holders may convert the property to an investment after this period, which can offer veterans a flexible option if they move or receive deployment orders.

4. USDA Loans: USDA loans also come with a one-year primary residence requirement. Since USDA loans are aimed at supporting rural and suburban homeownership, this rule helps ensure that borrowers live in the area and contribute to the community before converting it into a rental.

Tips for Transitioning Your Property to a Rental

If you’re considering turning your primary residence into an investment property after meeting the occupancy requirement, here are a few tips:

• Refinance for Better Investment Terms: After one year, you may want to consider refinancing to get a rate and terms that suit an investment property. Refinancing can also help you tap into any equity you’ve built up for further investment.

• Verify Local Rental Regulations: Before renting, check your local zoning laws and homeowners' association (HOA) rules for any restrictions on rentals or short-term leases.

• Document Your Occupancy Period: If you intend to transition to a rental, maintain documentation (like utility bills or tax records) proving that you met the one-year occupancy requirement. This can be helpful if questions arise from lenders.

• Consult with a Mortgage Professional: Loan rules and guidelines may change, and a mortgage professional can help you navigate the legal and financial aspects of converting your property.

Final Thoughts

If you’re considering turning your home into an investment property, living in it for at least one year is a common requirement across most loan types. This policy benefits both lenders and borrowers by ensuring responsible use of primary residence loans. With the right planning, you can smoothly transition your home into a profitable investment property and start building wealth through real estate.