Owner Occupant Home

Written by Gustan Cho

July 6, 2014

Both HUD and Fannie Mae have strict guidelines when it comes to owner occupant financing.  First of all, HUD, the mother of FHA insured mortgage loans, only offers owner occupant mortgage loans and do not offer second home financing or investment home financing.  Fannie Mae offers owner occupant mortgage loans as well as second home mortgage loans as well as investment home mortgage loans.  Owner occupant mortgage loans require that the mortgage note holder needs to have their home as their principal residence and must occupy their home for at least six or more months out of the year.  Their driver’s license as well as their mail needs to go to the owner occupied address and their tax returns need to state that they live in their owner occupant home.

Down Payment For Owner Occupant Homes

Owner occupant homes have the least amount of down payment required as well as the lowest interest rates.  For FHA, owner occupant homes only require 3.5% down payment and for conventional loans, a minimum of 5% down payment is required for owner occupant homes.  For second homes,  Fannie Mae requires a minimum of 10% down payment and for investment homes, Fannie Mae’s down payment requirement is 20% down on an investment home purchase.  There are circumstances where you may need out of your current owner occupant home and purchase another home due to a job relocation or due to needing more space due to your expanding family.  The question that many homeowners ask me is whether or not you can qualify for another owner occupant home if you currently have an owner occupant home without selling the first owner occupant home and that answer is YES but depending on the circumstances.

How Do I Qualify For Another Owner Occupant Home?

When you first purchased your first home as an owner occupant home, you have signed an affidavit stating that your are intending in living in the subject property and do not have any plans on renting it.  Both HUD and FANNIE MAE as well as your mortgage lender expect you to reside in the newly purchased home for at least 12 months.  However, you can qualify for another owner occupant home if you got a sudden job transfer or another job that is beyond commuting distance.  If you are living in a smaller home and you need more space and are seeking a larger home due to having a baby on the way or your in-laws moving in with you, you will qualify for another owner occupant home without the need to sell your first owner occupant home.  The deal needs to make sense.  The square footage of your second owner occupant home needs to be at least 30% greater than your current home or you need to be upgrading from moving from either a condominium or townhome to a home.  There is no distance requirement.  You can move down the street if you are upgrading to a larger home.  For a job transfer or new job, the new job needs to be beyond commuting distance of 60 or more miles or in a different state.  For example, if you purchase an owner occupant home in the state of Illinois and you got another job offer or job transfer in the state of Florida and provide proof, you will definitely qualify for another owner occupant home purchase without the need to sell your first owner occupant home.  However, you need to qualify for both mortgage loans in your debt to income calculations.  Renting your first owner occupant home is allowed, however, the rental income or potential rental income cannot be used unless you have at least 25% equity in your first owner occupant home.

Do I Need To Refinance To Get 25% Equity Or Just Pay Down My Mortgage To Utilize Rental Income On My First Owner Occupant Home?

You do not have to refinance and pay down your mortgage loan to utilize the potential rental income in order to qualify for the debt to income ratios.  You need to get an appraisal for your first owner occupant home and whatever the appraisal value is, you need to pay down your current mortgage loan to reflect that you have at least 25% equity on your first owner occupant home in order to be able to use the potential rental income to qualify for the debt to income calculation for your second owner occupant home purchase.  Even though you are planning on selling your first owner occupant home and/or your first owner occupant home is listed with a realtor, the home’s housing payment will be used to calculate your new mortgage loan’s debt to income ratios.

Moving From Multi Unit To Single Family Home

Any property up to a 4 unit building is considered a residential home and have the same mortgage lending guidelines as a single family home.  Those who are currently living in a multi unit building and have an owner occupant mortgage loan can qualify for a second owner occupant owner occupant home if they are intending on purchasing a single family home.  The homeowner needs to have lived in the owner occupant multi unit for at least 12 months.  This is especially common when a single homeowner buys a multi family home and decides to get married and raise a family where a single family home is more practical.

Cases Of Mortgage Fraud When It Comes To Multi Unit Properties

As mentioned in the previous paragragh, any properties up to 4 units is considered residential homes and residential mortgage lending guidelines apply.  FHA allows those owner occupant multi unit property buyers only to put a 3.5% down payment where FANNIE MAE, conventional loan programs, require 15% down payment for 2 to 4 units.  There are multi unit home buyers where they see no harm in purchasing a 2 to 4 unit multi unit property with the intent on renting out all of the units and having no intent in living in one of the units.  The home buyer normally has other living arrangements such as living with a girl friend or boy friend or family members and capitalizing on the rent.  However, they are signing a sworn statement that they are obtaining a mortgage and intending on living in one of the units.  Although the multi unit home buyer sees nothing wrong with it because they are intending on paying the mortgage payments timely, they are committing mortgage fraud and the consequences can be severe.  The federal government does not condone mortgage fraud and lying or misstating facts on a mortgage application is nothing less than a felony and there will be severe consequences.  I strongly suggest that you do not go there and that no money in the world is worth the severe penalties and consequences of getting caught.  HUD and/or FANNIE MAE do conduct random audits when it comes to residency and occupancy verification.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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