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How Owner Occupied Financing Works

By Tabitha Jean Naylor

If you are looking to purchase a primary residence it is important to understand the definition and the underwriting requirements of an owner-occupied mortgage.

What is Owner-Occupied Financing?

Fannie Mae, otherwise known as the Federal National Mortgage Association defines owner occupied financing as a mortgage securing a property that is a borrower's principal or primary residence-the place where the borrower says he or she will live for a majority of the year.

Mortgage Requirements

When you are applying for a mortgage to purchase a primary residence one of the requirements to receive the mortgage is that the property will be owner occupied. In this case, the lender will generally provide better terms than a mortgage for a non-occupied residence. It is common that the mortgage lender may not give permission for the home being purchased to be rented out. There are exceptions to this rule. Often, owner-occupied homes purchased with FHA insured mortgages can rent them out as long as the buyer has lived in the hone for a period of at least one year. As with any mortgage additional requirements will include a credit check, employment verifications, salary verification, tax returns for the past two years and other qualifying information.

Terms

Mortgage terms include many factors such as points, interest rates, the length of the mortgage, adjustable or fixed rate. With an owner occupied mortgage you can expect to receive lower interest rates. The actual rate will be determined by your credit score, how much you put down as a down payment and other factors. Points are another form of interest. Your lender looks at your overall needs and points may or may not be a condition of your loan. Owner-occupied financing tends to carry better terms than other types of mortgage loans and is more flexible with the time frames. Some loans have terms that extend as much as 40 years although for fixed rate loans 30 years is the most common. Another benefit of owner occupied financing is that the down payment requirement is lower than a mortgage loan being taken out on a rental property.

Fraud

If you apply for a mortgage as an owner-occupant but you do not intend to live in the property you are committing fraud. Even if you are planning to live in the property in several years, though you are purchasing the property now, you can't really claim the property is being owner occupied. To protect yourself, you should consult with a lawyer to determine your best options if you do not plan to immediately live in the property you are purchasing. You may need to go with a different financing method or rethink your strategy. In all cases, you should be honest with your lender about how the property will be used. This will protect you and also help your lender provide you with the best financing alternatives.

Lenders are authorized according to the New York Private Housing finance laws to provide financing to owner? Occupants of one to four unit private and multiple dwellings but there are financial limits per unit and requirements that must be met. In all cases, it is advisable to check with a qualified realtor or real estate lawyer for assistance in determining the best financing solutions for your specific real estate purchase.

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