Owner-Occupied Versus Non-Owner Occupied Property

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These are mortgage classifications used in the loan process and for risk-based pricing.

What is an owner-occupied property?

This means that the property is you, the owner’s, primary residence. The borrower of the mortgage is the owner of the property. You must occupy the home for the majority of the year, usually defined as more than six months.

An owner-occupied residence is also known as “principal domicile.” This means that the property’s address is where you file your tax returns, where you are registered to vote, and where you receive your mail.

What is a non-owner occupied property?

This is when the owner does not live in the property residence. Instead, you rent out your property to another party or it is unoccupied. Each scenario requires a different type of property insurance.

How do lenders view owner-occupied and non-owner occupied properties?

It is more likely that the borrower will default on the home loan if he or she does not occupy the property. If borrowers face financial difficulties, he or she is more likely to miss payments on a home that he does not currently occupy. As a result, lenders have different pricing and underwriting guidelines for owner-occupied and non-owner occupied properties.

Owner-Occupied Principal Home

Properties that are occupied by the owner usually receive slightly lower interest rates than non-owner occupied properties. Furthermore, owner-occupied home loans are more likely to be purchased by Fannie Mae or Freddie Mac. In order to qualify for these government-backed loans, the borrower must sign and certify that the property is their primary residence and that they reside in it for more than six months in a calendar year.

Owner-Occupied Second Home

In the case that the property is a vacation or second home, it may still be categorized as owner-occupied. However, this residence is not your principal residence. A second home indicates that you have another home as your primary residence. As a result, to qualify for a Fannie Mae or Freddie Mac mortgage, you will need to follow their second home guidelines.

Non-owner Occupied Investment Home

Homes that are not owner-occupied are considered investment properties. These loans tend to be 0.375% higher than owner-occupied homes and usually require a higher downpayment. Buying and renting out properties is very common in the real estate market.