Table of Contents

Non-Owner Occupied: Meaning, Overview, FAQs

By

澳洲幸运5官方开奖结果体彩网:Julia Kagan

Updated November 06, 2024

Reviewed by

Lea D. Uradu

Happy young couple moving into their non-owner occupied apartment, carrying boxes and plants. — miodrag ignjatovic / Getty Images

What Is Non-Owner Occupied?

Non-owner occupied is a classification used in mortgage origination, risk-based pricing, and housing statistics for one- to four-unit investment properties. The classification means that the owner does not occupy the property. The term i🍸s not typically used for multifamily rental properties, suchꦫ as apartment buildings.

Key Takeaways

Non-owner occupied is a real estate classification that means the property owner does not occupy the property as their personal residence.
The accurate classification of a property as non-owner occupied is important for lenders to determine the interest rate that they will charge borrowers and to ensure they are adequately compensated for the risks they take in lending money.
Because borrowers of non-owner-occupied properties are more likely to default on their loans, mortgage lenders will charge them a higher interest rate than a mortgage on an owner-occupied property.
Occupancy fraud occurs when a borrower lies to a lender, claiming that a property will be owner occupied when, in reality, it will not.
A borrower can use a non-owner-occupied renovation loan to purchase an investment property and pay for the costs to repair the property for future tenants.

How Non-Owner Occupied Works

The accurate classification of property is important for real estate lenders to determine the 澳洲幸运5官方开奖结果体彩网:interest rate they will charge a borrower and to ensure they are adequately compensated for the risks they take in lending money for a purchase. A mortgage on a non-owner-occupied property might have a slightly higher interest rate than a mortgage on an owner-occupied property. This is because borrowers of non-owner-occupied properties are more likely to default on their mortgages.

Because of the higher interest rate, some unscrupulous borrowers will try to classify a non-owner-occupied mortgage as an owner-occupied mortgage to receive a lower interest rate and save money. This is a type of mortgage fraud known as 澳洲幸运5官方开奖结果体彩网:occupancy fraud.

Occupancy fraud occurs when a borrower lies on a 澳洲幸运5官方开奖结果体彩网:mortgage application regarding whether or not the property will be owner occupꦚied. If discovered, the borrower could face many repercussions, including prosecution for bank fraud or a dema𒀰nd from the lender that the entire mortgage balance be repaid immediately.

Important

In some situations, renting an owner-occupied property may not be occupancy fraud, such as when a homeowner✨ must move elsewhere for a job. To avoid unintentionally committing occupancy fraud, borrowers sho🍬uld contact their mortgage lenders before renting owner-occupied properties to tenants.

𒅌Non-Owner-Oꦑccupied Properties and the Real Estate Market

In many cases, non-owner-occupied properties refer to condominiums and other single-family homes that are owned and rented out to others. Non-owner-occupied properties require insurance coverage before r⭕enters can use them. Furthermore, if the property is not rented out to tenants and if it is intentionally vacant with no occupants, then a different t𝔍ype of property insurance will be necessary.

Buying and renting out properties for other residential occupants represents a significant part of the overall real estate market. Those who invest in these properties typically search for properties that need repairs but offer the possibility of attracting tenants if they are refurbished and repositioned on the market. This could also apply to different types of 澳洲幸运5官方开奖结果体彩网:vacation properties that are not the primary dwelling of the owner.

Non-Owner-Occupied Financing

There is a class of 澳洲幸运5官方开奖结果体彩网:financing for non-owner-occupied properties specifically for renovation purposes. A non-owner-occupied renovation loan is a type of mortgage that the borrower can use to acquire the property and borrow funds that will go toward the renovation of the dwelling. In this case, the property will not be a 澳洲幸运5官方开奖结果体彩网:turnkey property that the investor can purchase and immediately rent out. The value of such a mortgage is typically based on the value of the property after it has been refurbished and renovated.

While there is no minimum repair work that must be done with the funds from this type of mortgage, the renovations must be a permanent part of the residence. This could include adding a new bathroom, replacing a roof, new plumbing, or paving a new driveway. The renovations must also increase the overall value of the property on which the mortgage was taken out. Cosmetic improvements that increase the appeal of the property are not enough. Repairs and refurbishments must create a tangible improvement in the dwelling’s 澳洲幸运5官方开奖结果体彩网:market value. Such mortgages typically🙈 can be used by owners ꦫwith up to four financed non-owner-occupied properties.

Why Is the Interest Rate Higher for Non-Owner-Occupied Properties?

Borrowers who do not intend to live in the property as their primary residence have a higher risk of default than borrowers who do live in the property. To compensate for this risk, lenders charge higher rates.

Is It Better To Refinance or Take out a Loan on a Second Property?

That depends on the 澳洲幸运5官🦩方开奖结果体彩网:equity you have in your prima♔ry residence. Generally, rates are lower on 澳洲幸运5官方开奖结果体彩网:refinances on 澳洲幸运5官方开奖结果体彩网:primary residences than on non-owner-occupied properties. Get some rates from lenders so that you can do a si🔯de-by-side comparison.

Can I Get a Better Rate if I Turn a Property Into My Primary Residence?

If, after not occupying the property for a long time, you decide to live in it as your primary residence, you may be able to refinance to get a different rate. Keep in mind that every refinance has 澳洲幸运5官方开奖结果体彩网:closing costs, so make sur𝔉e you will have a tangible net benefit from refinancing. An example would be someone who owns a cabin where they like to vacation and then moves into the cabin full time after retirement. That individual could refinance to get a better rate on their cabin.

The Bottom Line

The term “non-owner occupied property” is expository. A non-owner-occupied property is one in which the owner does not occupy the property. Non-owner-occupied properties have higher loan rates than properties that are owner occupied. This creates a situation where borrowe𒐪rs are tempted to commit occupancy fraud to get lower rates, but committing mortgage fraud is always a bad idea. If you do have a non-owner-occupied property, make sure that your property is insured accordingly.

Article Sources

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