Borrowers who misrepresent their intended use of the property they are financing are a major concern for lenders. Occupancy fraud is one of the mortgage industry's biggest challenges, and loan agents are well versed in the repercussions, and work on educating our clients about the importance of correctly reporting occupancy.
But from a lender’s point of view, what is the difference between an owner occupied home and a non-owner occupied home? The mortgage industry assigns pricing and mandates specific underwriting guidelines based on perceived risk. Properties that are not going to be occupied by the borrower are referred to as investment properties and are more likely to go into default than owner-occupied homes.
Mortgages on homes that will be occupied by the borrower as their principal residence are least likely to go into default and foreclosure. This is because a borrower facing tough times is more likely to walk away from a rental property than the home he and his family lives in. The third category of occupancy is the vacation home. Mortgages for these properties are given rates comparable to those on owner-occupied homes but their location must make sense as a vacation home.
To compensate for the increased risk of foreclosure, rates for mortgages on investment properties, also called non-owner occupied properties, are higher (roughly .375%) than for loans on owner occupied homes. In addition, non-owner occupied loans require a higher down payment – usually a minimum of 20%. Since most borrowers want the lowest rate with the least amount of down payment possible, it has proved tempting for some homebuyers to state that they are going to live in the home even though they have no intent on doing so. It is best for all parties involved to be open about the occupancy of the property, and your agent will work with you on the best financing possible.
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