Understanding the Role and Benefits of an Owner-Occupant
An owner-occupant is a resident of a property who holds the title to that property. In contrast, an absentee owner holds the title but does not reside there. An absentee landlord is one type of absentee owner.
Key Highlights
- Owner-occupants live in and own the property where they reside.
- Some loans are exclusively available to owner-occupants, not to absentee owners or investors.
- Typically, to be considered owner-occupied, residency must commence within 60 days of closing and last for at least one year.
- The U.S. Department of Housing and Urban Development (HUD) offers specific programs for owner-occupants, such as the Good Neighbor Next Door Program, which provides discounts to first responders who commit to living in a property for at least three years.
Essential Insights on Owner-Occupant Designation
When applying for a mortgage or refinancing, lenders need to know if the borrower intends to be an owner-occupant or absentee owner. Some loan types are uniquely available to owner-occupants. To qualify, the application must typically indicate the borrower’s intention to occupy the property as their primary residence. Generally, homeowners must move in within 60 days post-closing and reside there for at least a year.
If the property is purchased in the name of a trust, as a vacation home, a second home, or for a child or relative, it doesn’t qualify as owner-occupied.
Homeowners who have lived in their home for more than 12 months typically do not need to inform their lender if they move out. Misleading a lender about one’s living intentions, e.g., intending to rent a home while claiming it as a primary residence for a mortgage, constitutes occupancy fraud.
Special Considerations
Lenders may propose favorable programs to borrowers intending to reside in the property rather than lease or sell it. Proof of intent requires signing an Owner-Occupant Certification. This document, also known as HUD-9548D, is available on the HUD website and must be signed by the buyer and real estate agent.
Penalties await those submitting false certifications, with fines up to $250,000 or imprisonment up to two years. Exceptions exist for borrowers intending to live in a property but needing to move within 12 months. Programs may detail minimum residency, like HUD’s program for first responders offering 50% discounts on properties, with a three-year occupancy requirement. Premature departure will lead to recalculated discounts.
Pros and Cons of Owner-Occupied Investment Properties
Pros:
- Tax savings
- Eligibility for HUD buying assistance programs
- Access to HUD foreclosures
Cons:
- Close contact with tenants
- Potentially higher insurance costs
- Possible coexistence with tenants
Living in an investment property can expedite wealth generation but comes with challenges like cohabiting with tenants. Evaluate your comfort level with such an arrangement before proceeding.
Owner-Occupied FAQs
Is a Second Home Owner-Occupied?
No. A second home does not inherently qualify as owner-occupied. However, it can be refinanced as a primary residence if the owner decides to live there full-time.
Does a Duplex Count as Owner-Occupied?
Yes, provided you reside in one part of the duplex as your primary residence.
Is a Home With an Accessory Dwelling Unit (ADU) Owner-Occupied?
Yes, if you occupy either the main residence or the ADU, it qualifies as owner-occupied.
In Summary
Opting for an owner-occupied property offers significant financial savings and the potential to climb the property ladder swiftly. The allure of rental income can offset your housing costs, but be mindful of the challenges of living closely with tenants. Ensure you understand the implications before committing to a property where you’ll also be a landlord.
Related Terms: mortgage, absentee owner, occupancy fraud, HUD.
References
- U.S. Department of Housing and Urban Development. “About Good Neighbor Next Door”.
- Rocket Mortgage. “Understanding Owner-Occupied Properties: What Investors Should Know”.
- U.S. Department of Housing and Urban Development. “Certification for Individual Owner-Occupant Buyers”.
