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Owner Occupied vs. Non Owner Occupied Properties

Occupancy type is pretty straight forward. Conventional mortgages are designed to help everyone buy a home, specifically a primary residence (owner occupied) . When you use conventional financing to buy an investment property (non owner occupied) you are charged more by way of a higher interest rate or fees.

Many people will buy homes as a primary residence then convert them to rentals. This is ok as long as you legitimately stay in the property for a year. There is another classification of occupancy type called a second home . Second homes can be purchased very close to the same pricing as a primary residence, the biggest difference are the loan to value restrictions.

One thing to be careful of is that many people try to purchase second homes and use them as investment properties. Lenders are wise to this, and if you are caught using a second home as an investment property you could have your loan called due, this is not fun. Not to mention, Fannie Mae and Freddie Mac consider this fraud and can carry Federal fines or imprisonment. Lenders regularly make occupancy checks to ensure they are within conventional lending occupancy standards. Here are three main occupancy types:

  • Primary Residence - A home you intend to occupy, affords you the best rates.
  • Second Home - A home at least 50 miles from your primary residence, or situated within a resort or vacation area. Affords you the best pricing with a larger down payment.
  • Investment Property - A home purchased with the intention to flip for profit or rent. Usually will have higher pricing 1 - 2 points depending on down payment and loan to value.
  • Commercial Property - This property type is not insurable by the conforming agencies.
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