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Owner Occupant Home Financing Guidelines Versus Non-Owner

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Owner Occupant Home Financing Guidelines Versus Non-Owner

This BLOG On Owner Occupant Home Financing Guidelines Versus Non-Owner Was UPDATED On April 19th, 2019

By Gustan Cho

Owner occupied home financing offer the best interest rate, lowest down payment requirement, and the best mortgage terms out of all mortgage loan programs.

  • Mortgage lenders view owner-occupied home financing loans as less risky than second home and investment home mortgages
  • The reasoning behind it is because an owner-occupied homeowner is less likely to default on their primary residence
  • Chances are that homeowners will likely to default on their second homes and/or investment property in the event of financial distress
  • There are strict mortgage guidelines on how a home is classified as an owner occupied home versus investment homes

Government Loans

FHA loans are one of the most popular mortgage loan programs. It offers home buyers with less than perfect credit and high debt to income ratios to become homeowners with only a 3.5% down payment and a 580 credit score.

  • However, FHA loans are only available to owner-occupied homeowners
  • FHA Loans are not available for second home buyers and investment property buyers

All government loans are for owner occupant home financing only. VA, FHA, USDA does not permit non-owner occupant financing.

Owner Occupant Home Financing On Primary Homes

An owner-occupied home is classified when a home buyer intends in living in the home they are purchasing. Homeowners need to occupy the home at least six or more months out of the year. Owners cannot rent owner-occupied homes for at least one year from the date of closing.

  • There are different types of occupancy on residential mortgages
    • Owner-occupied mortgage
    • Second home mortgages
    • Investment Home Loans

Home Buyers applying for FHA loans need to intend on living in a new home purchase.

  • Home Buyers cannot lie on a mortgage application and apply as an owner-occupied home mortgage loan and then turn around and rent it out without having the intent in living in new home purchase
  • Let’s take a case scenario:
    • borrowers applying for an FHA loan
    • intend in living in new home purchase
    • then change their minds and intend on not living there due to a job transfer, a separation, or other extenuating circumstances
    • On this case scenario, it is fine
  • Mortgage lenders require that home buyer live in an owner-occupied home for at least one year
  • After the one year seasoning, they can rent it out and purchase another owner-occupant residence

Qualifying For Another Owner Occupied Home Without Selling The First Home

Home Buyers can qualify for another owner-occupied home without selling the first home as long as it makes sense.
  • If a homeowner owns 2,000 square feet home and intends on buying a second 2,000 square feet home one mile away, it will not make sense
  • On this particular scenario, a home buyer will not qualify for the second home as an owner-occupied home
  • This is due to the fact that is close and similar in size as the first owner-occupied home
  • On this case scenario, the second property can qualify as an investment property home
  • However, if the buyer is moving from the 2,000 square feet home to a 3,000 square feet home due to an expanding family, then the second home purchase will qualify for an owner-occupied home
  • This holds true as long as the buyer can show that they need to live in a larger home due to having kids or having in-laws or parents moving in with borrower
  • On the flip side, let’s take a case scenario
    • the homeowner lives in a 2,000 square feet home
    • kids are grown and off to college and out of home
    • homeowner intend in downsizing and moving to a 1,000 square feet home
    • buyer will qualify for an owner occupant home financing on the second home due to downsizing
  • The borrower would need to qualify for both housing payments in the debt to income ratios qualification
If a homeowner owns a 2,000 square feet home and intends in purchasing another similar sized priced 2,000 square feet home that is over 60 miles or further due to a job transfer, they can qualify for the second home as an owner-occupied home due to the distance.

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