Leasebacks and Buying New Home

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When applying for a home loan, occupancy matters.  Equally, how soon the buyer occupies the home after closing is critical.   In fact, how soon buyer’s occupy ultimately defines (in part) occupancy.

How Soon Must You Move Into a New Home

For whatever reason, buyers cannot always move right into their new home after buying it.   For example, they are moving across country or they are on a vacation.  In addition, sellers often remain in their house after it is sold.  Perhaps the seller is buying a new home with a closing several weeks after they sell their current home.

Real Estate agents call this a “leaseback.”   In a leaseback, a new buyer rents their new house to the person they just bought it from.  Leasebacks are commonly short in duration.   Underwriter radars light up upon seeing “leaseback” in a real estate contract.  To clarify, underwriting radar flashes on primary residence loan application with “leaseback” terms in the purchase contract.

After-all, a primary residence loan application must be for, well …. a primary residence.   Occupancy impacts your interest rate, down payment requirement and overall risk to a lender.   New home-buyer’s do not need to move in to their new home the moment it funds.  However, a limit must be set to differentiate a primary residence from an investment property right.   In other words, lenders do not like buyers attempting to leverage favorable primary residence rates for what is really a rental property.

Occupancy Move In – If Not Now Then When?

Requiring buyers to move in 0 seconds after their loan funds is unreasonable.  However, lenders do limit the time buyers have to occupy in order to manage occupancy fraud.  The magic number is 60 days.

Primary residence home-buyers must move into their new home within 60 days of the close of escrow date.  While VA home loans offer exceptions to this, the 60 day rule is common for most loan products.

By Jeremy House

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