Definition and Examples of Owner-Occupant
How Does an Owner-Occupant Work?
Advantages and Disadvantages of Being an Owner-Occupant
What Does It Mean to Be an Owner-Occupant for Owners?
Definition and Examples of Owner-Occupant
An owner-occupant is a person who buys a property containing residential units and also lives in it. For example, if someone buys a three-unit home, they would live in one unit as an owner and rent out the other two.
How Does an Owner-Occupant Work?
When purchasing a multi-unit property, some mortgage programs may require that you be an owner-occupant. This includes home loans from the Federal Housing Administration (FHA), Veterans Affairs (VA) loans, and United States Department of Agriculture (USDA) loans.
If your loan program requires owner-occupant status, you will be asked to certify that you will live in the property for a specified period. For example, the Department of Housing and Urban Development (HUD) requires a minimum of 12 months. For other programs like HUD’s Good Neighbor Next Door, the owner-occupant requirement is three years.
Note: Misrepresenting owner-occupancy is a serious crime. Individuals who lie and say they will live in an investment property and then do not, or who act as “straw buyers” (obtaining a loan for someone else under false pretenses), can face significant legal issues. Lenders may raise your interest rate, demand full repayment, or even foreclose on the property. Not to mention you could be fined or prosecuted for federal charges.
Advantages and Disadvantages of Being an Owner-Occupant
Advantages:
- More loan options and favorable rates
- Rental income to cover home expenses
- On-site presence to manage any issues that arise
Disadvantages:
- Potential tenant challenges
- Reduced tax benefits
What Does It Mean to Be an Owner-Occupant for Owners?
If you are considering purchasing a multi-unit home that you will also have rental income from, deciding whether you want to be an owner-occupant is one of the key decisions to make. This will not only affect your lifestyle and income but will also impact the types of loans you may qualify for and your overall financial status.
While it may be tempting to claim that you will be an owner-occupant to benefit from better interest rates and loan programs, or to try to secure a mortgage for a family member who does not meet other criteria, doing so would mean you are committing fraud – and there are serious consequences for that.
Be sure that if your loan program requires you to sign an owner-occupancy certification, you continue to live in the property for the required time (usually 12 months or more).
Key Takeaways
An owner-occupant is someone who makes the property they own and rent out their primary residence. Some mortgage programs require borrowers to remain owner-occupants for a specified period of time, rather than being absentee owners. Being an owner-occupant has its advantages and disadvantages, so make sure you understand your responsibilities when making a real estate decision that requires it.
Source: https://www.thebalancemoney.com/what-is-an-owner-occupant-5191629
Leave a Reply