owner occupied loans

As the name suggests, an owner-occupied loan is given to a borrower who is expected to stay in the home for at least a year. Banks consider these loans to be less risky compared to investment properties. Because of the lesser risk they carry, owner-occupied loans come with lower interest rates. They also have lesser fees and penalties compared to second home mortgages or investment property loans.

What are the Risks of Owner Occupied Loans?

There are many advantages to owner occupied loans. However, these advantages are only beneficial if you stick to the agreed terms of the loan. For instance, with an owner-occupied loan, you are expected to stay in the property for 12 months. Failure to remain true to your end of the deal might be considered fraud, and you will most likely face heavy penalties.

The deal with owner occupied loans, therefore, only makes sense when you are staying in the property. You will also need to stay in the house for the majority of the year. If you fail to do so, the loan can be considered a second home or an investment property. However, since these two do not have the same requirements, it means you won’t be able to enjoy the advantages of the owner-occupied loan.

How is Owner Occupied Defined?

For a property to qualify as owner-occupied, the borrower must reside in the home for the majority of the year. What does this mean? This means you must spend your time at the property and not stay at another house. However, you must note that vacations are not considered a violation of your agreement. To qualify for this loan, you must:

  • Stay at the property for no less than 70% of the year
  • Work within 50 miles of the home
  • Sign the documentation stating that you will stay at the property
  • Plan to move in within a month of closing
  • Stay at the home for at least a year

Benefits of Owner Occupied Loans

There are several benefits associated with owner occupied loans. These include:

  • Low-interest rates
  • Smaller deposit required
  • Low capital gains tax if the home is sold after 12 months
  • The borrower may qualify for homestead exemption when filing property taxes
  • Property tax is deductible

These are some of the benefits of owner occupied loans. As long as you stick to the agreements, these loans are quite convenient and enable you to purchase your home without parting with too much money. Furthermore, with owner occupied loans, most banks will usually accept a loan-to-value ratio of as much as 97%.