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What is Owner Occupied Financing?

Owner occupied loans are the preferred lending choice for most banks because they have little risk when compared to investment properties and second home mortgages. With owner occupied financing, the borrower is typically expected to reside in the home for a period of at least 12 months, hence the term "owner occupied." Unlike investment loans which are underwritten differently, owner occupied financing options typically carry lower interest rates, fees and penalties than a mortgage for a second home or investment would making this an attractive financing option for home buyers.

While owner occupied financing may have attractive rates when compared to other means of financing, it's important to keep in mind that purchasing a home using owner occupied financing and then not occupying the home could signify fraud and get you into a lot of trouble. The property and the individual situation must be sensible and you must actually reside in the property for the majority of the year in order for it to be considered owner occupied. Anything less could be considered a second home or an investment property, both of which do not have the same underwriting requirements.

Defining Owner Occupied

In order for a property to be considered owner occupied you, the owner, must live at the residence for the majority of the year. What is the majority of the year? The majority of the year can typically be defined as you spending your time mostly at the property and not somewhere else. If you go on vacation or travel, that's fine, but if you spend upwards of 30% of your time somewhere besides the residence that you are financing then you may not qualify for an owner occupied loan.

If you can meet these requirements, chances are you can qualify for owner occupied financing:

  • you live in the property for at least 70% of the year
  • you work within 50 miles of the property and the property is in a generally area that is suited to the immediate needs of your family
  • you honestly sign documents stating that you intend to live in the property that you are financing
  • you intend to move into the property within 30 days of closing
  • you remain in the home for at least 12 months

Benefits of Owner Occupied Financing

There are a number of benefits when it comes to owner occupied financing versus investment financing. Some of the benefits include:

  • lower interest rates and a smaller down payment requirement
  • If the owner sells the property after he or she has been there at least 12 months, there will be lower capital gains tax than if the property were financed as an investment
  • owner may qualify for homestead exemption on property taxes
  • mortgage interest and property tax is deductible
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