Mortgage Lending Guidelines For Owner Occupied Home

By Gustan Cho

Owner occupied home mortgage loans 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 mortgage loans as the less riskier than second home mortgage loans and investment home mortgage loans.  The reasoning behind it is because an owner occupied home owner is less likely to default on their primary residence than they would on their second homes and/or investment property in the event there is an extenuating circumstance with the homeowner.  There are strict mortgage lending guidelines on how a home is classified  as an owner occupied home.

FHA Loans

FHA loans are one of the most popular mortgage loan programs where 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.  However, FHA loans are only available to owner occupied home owners and are not available for second home buyers and investment property buyers.

Primary Residence: Owner Occupant Homes

An owner occupied home is classified when a home buyer intends in living in the home they are purchasing for at least six or more months out of the year and does not plan on renting it out for at least one year from the date of closing.  Mortgage lenders have different classification on residential mortgage loans:  Owner occupied mortgage loan borrower, second home mortgage loan borrower, and investment home mortgage loan borrower.

If you are applying for a FHA loan, you need to intend on living on your new home purchase.  You cannot lie on your 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 your new home purchase.  However,  if you apply for a FHA loan and intend in living in your new home purchase but then change your mind and intend on not living there due to a job transfer, a separation, or other extenuating circumstances, then it is alright.  Mortgage lenders require that you live in your owner occupied home for at least one year and you can rent it out after that one year period.

Qualifying For Another Owner Occupied Home Mortgage Loan Without Selling The First Owner Occupied Home

You can qualify for another owner occupied home without selling the first owner occupied home as long as it makes sense.  If you own a 2,000 square feet home and intend on buying a second 2,000 square feet home one mile away, it will not make sense.  On this particular scenario, you will not qualify for the second home as an owner occupied home 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 you are 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 as long as you can show that you need to live in a larger home due to having kids or having your in laws or parents moving in with you.  On the flip side, if you live in a 2,000 square feet home and your kids are grown and off to college and out of your home and intend in down sizing and moving to a 1,000 square feet home, you will qualify for an owner occupied mortgage loan on the second home due to down sizing.  You would need to qualify for both housing payments in the debt to income ratios qualification.
If you own a 2,000 square feet home and intend in purchasing another similar sized and priced 2,000 square feet home that is over 60 miles or further due to a job transfer, you can qualify for the second home as an owner occupied home due to the distance.
Related> What is the definition of owner occupied property
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.

Comments are closed.