“Years ago, I wanted to scale down and buy a condo in my neighborhood and keep my old house. But the lender denied my loan because they didn’t believe I was actually going to move into the condo. Is that even legal?”
Yes. In fact, it just happened on one of my transactions.
The client owned a nice house but was buying a duplex to move into so he could live with his parents on the other side and take care of them. Even though he was moving to a more desirable part of San Diego, the loan underwriter (decision maker) didn’t believe him and denied the loan. Fortunately, we were able to move him to another lender who approved the loan.
It’s not so much that the lender won’t make such a loan, it’s that they won’t approve it at the more attractive rate for an owner-occupant if they don’t think the buyer will live there.
And you can’t completely blame them. Many people say they’re buying a property as their primary residence to get the lower rate and better terms, with no intention of doing so.
So, unfortunately, the actions of some dishonest people hurt those who are playing by the rules.