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Understanding Owner-Occupied Financing

By Elizabeth R. Elstien

What is the difference between owner-occupied and non-owner-occupied mortgage loan financing? Follow these questions and answers to find out.

What Is Owner-Occupied Financing?

When a buyer that intends to live in the home being purchased acquires a mortgage for that home, then the loan is known as owner-occupied financing. The soon-to-be owner of the home is the one occupying the property and not a tenant.

Is Any Property Eligible For Owner-Occupied Financing?

No. An owner-occupied home could be a condominium, single-family residence or a small multi-family complex with up to four units where the owner lives in one unit as her/his main residence. Apartment complexes with five or more units are not eligible for owner-occupied financing?

What Type Of Loans Are Available for Owner-Occupied Home?

Many mortgage loan types are available for owner-occupied homes, depending on what the borrower qualifies for. Conventional, FHA, and VA loans can all be used. Loans for owner-occupied homes come with lower interest rates and down payment amount and better terms than investment loans.

Is Owner-Occupied Financing Difficult To Get?

Owner-occupied financing is easier to obtain than non-owner-occupied (or investment), as the lender assumes the homeowner is highly interested in keeping her/his primary residence by making timely mortgage payments. On the other hand, one- to four-unit residences bought with the intent of renting all the units out are less likely to have the mortgage paid should the owner fall onto hard times. Of course, the borrower still has to be approved for the loan by having good credit, enough income, proper down payment, etc.

Are There Any Stipulations With Owner-Occupied Loans?

Yes. Most lenders require the borrower live in the property for at least one full year. Some lenders won't let you rent out the property you live in during the loan term, while others may give permission after one year of the borrower living in the property. Don't commit fraud to get better terms. Be honest with the lender.

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