Owner Occupied — Coldesina Capital (2024)

Owner Occupancy Guidelines

The allure of obtaining owner-occupied property is that you can enjoy the most attractive financing opportunities reserved for homeowners, not investors. However, you will need to meet specific requirements in order to qualify as an owner occupant.

In general, you will need to move into the property within 60 days of closing. Additionally, you must live in the property for at least 12 months to qualify as an owner occupant with most lenders.

In contrast, you could obtain financing as an absentee owner. An absentee owner is a property owner that does not live on-site. For example, a property owner that rents out a single-family home without living on-site would be considered an absentee owner.

However, each lender sets its own owner-occupancy guidelines. It is critical that you read the fine print of your mortgage lender's owner-occupancy requirements. Otherwise, you could be committing mortgage fraud.

Owner Occupancy and Real Estate Investing

Real estate investors can capitalize on the opportunity presented through owner-occupied financing. In general, it is significantly easier to find a lender willing to finance an owner-occupied property than the one willing to provide financing for a second property.

Additionally, lenders are often willing to offer lower interest rates to borrowers pursuing an owner-occupied property. With that, real estate investors often choose to leverage the financing options available through owner-occupied financing. As a new real estate investor, you may choose to pursue an owner-occupied property that will allow you to produce a rental income.

For example, many choose to dive into real estate investing with an owner-occupied multi-family property. With this choice, the real estate investor can live in one unit and rent out the others. Plus, they can take advantage of more accessible financing options to start building their investment portfolio.

Advantages

First, let us explore the advantages of investing in owner-occupied real estate.

• Investors will only need one mortgage for both their primary home and investment property. Managing a single mortgage payment can be more financially viable than financing multiple investment properties.

• Investors are near their tenants in the event of an emergency. If you live on-site, you’ll be able to handle any emergencies that arise quickly. Plus, you can ensure that proper care is being taken to maintain the property to your standards.

• Certain loans are only available to owner-occupants. In most cases, owner-occupants can tap into more affordable financing opportunities than absentee owners or investors.

Disadvantages

Of course, there are also some disadvantages to consider when investing in owner-occupied rentals.

• Owner occupancy could mean living with noisy neighbors. A multi-family property means living in relatively close quarters with your tenants. With that, you could be dealing with loud neighbors or tenants that are ready to complain while you’re at home in your unit.

• Owner-occupied investors could have a harder time finding renters. In some cases, tenants may be reluctant to live on the same property as their landlord.

• Becoming a landlord is not passive income. As a landlord, you will be responsible for managing tenants and maintaining the property. Unfortunately, contrary to public perception, managing rental properties requires a considerable amount of work. Be prepared to handle the additional workload or find a property management company to handle the day-to-day operations.

FHA Loans

An FHA loan, backed by the Federal Housing Administration, allows you to contribute a down payment of as little as 3.5% on a property. Many homeowners choose to pursue an FHA loan due to the low credit requirements. Plus, you could even have the closing costs rolled into your loan.

FHA loans are only available to homeowners who intend to use the property as their primary residence. You must move into the property within 60 days of closing to qualify for an FHA loan. However, you will be able to buy a property with up to two units through an FHA loan, which opens opportunities for real estate investors.

VA Loans

The Department of Veterans Affairs backs VA loans. This type of loan is only available to members of the military or veterans that meet the service criteria.

If you qualify for a VA loan, you are able to put down 0% to close on the property. However, you will have to pay a funding fee. VA loans are especially attractive because there’s no private mortgage insurance attached.

VA loans will allow borrowers to finance a single-family home or a property with up to four units which can double as a rental property. Like the FHA loan, you will need to use the property as your primary residence if you pursue a VA loan. That means that you’ll need to move into the property within 60 days of closing.

Conventional Loans

A government agency does not back a conventional loan. That said, the requirements for obtaining a conventional loan are more stringent. In most cases, you will need to have a credit score of at least 620 and a debt-to-income ratio (DTI) of less than 50%.

If you can qualify for a conventional loan, you may be able to put down as little as 3%. As far as occupancy requirements, you’ll need to check with your specific lender before moving forward to ensure you can qualify.