Occupancy type is a major factor in mortgage loans. Occupancy can have a large impact on interest rates when it comes to residential mortgage loans. The type of occupancy will also determine which programs a borrower will potentially qualify for and how much of a down payment the homebuyer will need to generate.
There are three different classifications of properties when it comes to financing: Primary Residences, Second Homes, and Investment Properties. While determining occupancy is generally fairly straightforward, below are some distinctions and unique circumstances to take into consideration.
A primary residence is a property where a borrower plans to live and occupy as their principal (main) residence. To qualify for a primary residence, only one borrower is required to occupy the property for most loan programs. Furthermore, for purchase transactions, it is required that the borrower move into the property within 60 days of the purchase. Additionally, the occupying borrower must plan to reside in the residence for at least one year. While there are checks and balances or governance around this, this is the definition of what is considered primary occupancy.
A second home is classified as being occupied by the borrower for some portion of the year but not more than the borrower’s primary residence. The borrower must have ‘exclusive control’ over the property and it must not be subject to any sort of timeshare management or agreement. Rental income is allowable on the property however it will not count towards adding any additional qualifying income.
Investment property guidelines are extremely straightforward. An investment property must not be occupied by the borrower in any capacity. Additionally, the borrower should also not have any plans to occupy the residence in the foreseeable future. One major benefit for Investment properties is that they can utilize expected rental income to bolster qualifying income.
Occupancy fraud is one of the most common types of mortgage fraud. It is not uncommon for people to misrepresent the intended use of the property to aid in qualifying or to obtain a better interest rate.
In conclusion, occupancy is an important and straightforward designation for mortgage loans. It is important to know what type of occupancy your home will be so that your mortgage lender can search for appropriate loan programs and meet guidelines. If you have any questions give us a call at 760-930-0569.
