Non-Owner Occupied Investment Property: All You Need to Know

If you want to build or buy a property but have no plans to live there, a non-owner-occupied mortgage might be the best option. Important to note is that the requirements for non-owner-occupied properties are more strict than those for owner-occupied homes. The strictness is because lenders view non-owner-occupied properties as high-risk. You can, however, have a stress-free home ownership experience through this option if you have helpful information and tips to guide you. Let’s take an in-depth look at this financing option for potential investment properties in the rental market.

What is a Non-owner-occupied Property?

The term “non-owner-occupied” refers to real estate properties whose owners don’t occupy them. In most contexts, the phrase refers to single-family homes and condominiums with owners, but they rent out to occupants rather than selling it. This designation may also apply to rental properties with more than one dwelling unit.

How Do Non-owner-occupied Mortgages Work?

The contrast between a mortgage on a non-owner-occupied property and a mortgage on a borrower’s primary residence will become relevant when a lender evaluates a borrower’s application. Mortgage lenders use this property categorization to determine the loan’s interest rate.

The lender is likely to charge a higher interest rate for a mortgage for non-owner occupied because the property owner not occupying has a greater chance of defaulting. The lender responds to this risk by charging a higher interest rate for compensation.

In addition to the rate of interest, a lender for a mortgage on non-owner occupied may need a more significant down payment. The substantial down payment is one more manner in which the lender can protect themselves from the higher risk with mortgages for properties that are not owner-occupied.

How Much Down Payment Do You Need?

The down payment on an investment property is generally higher than an owner-occupied mortgage. With that, if you are looking for non-owner-occupied financing, you’ll likely be faced with a high down payment requirement.

Although a lender will likely require a larger down payment for non-owner occupied, the exact percentage will depend on the individual lender. But you can expect a down payment requirement between 20% to 30%, unlike the down payment requirements of an owner-occupied mortgage, which range from 5% to 10%. 

Why Is The Interest Rate Higher?

When an investor purchases real estate with a mortgage, not for the owner’s habitation, the danger of the investor defaulting on the loan is higher. So, lenders safeguard themselves by imposing a higher interest rate on loans.

The sort of down payment the borrower makes and their credit score will, of course, play a role in determining the interest rate. A borrower can obtain a cheaper interest rate if they have a high credit score and can make a substantial down payment. 

Do I Need a Non-Owner Occupied Loan?

You should look into getting a non-owner-occupied loan if there is any chance that you will not reside on the property but instead have it as a rental property. You can ask your lender or financial advisor for assistance in determining if you can refinance your property differently depending on any unusual occupancy scenarios. You may want to categorize your property differently if you live in your home half the time and rent the other half.

What Does This Mean for Second Primary Residences?

You may qualify for an owner-occupied loan even if you own a home. Owning two residences allows you to spend weekends with family and work nights elsewhere. Family changes, such as having too many children to live in one home or buying a home for an aged relative, might also allow a second principal residence in the same person’s name.

Regardless, applying for a government-backed loan might be closely scrutinized if you currently have a mortgage. Because occupancy fraud is widespread, the lender will thoroughly evaluate your qualifications, reducing the chances of the guarantee of a second mortgage.

Residential property investors in 12 states can get asset-based funding in 10 days through Center Street Lending. We provide 9-month short-term financing for renovations. Center Street Lending finances purchases, including properties that traditional lenders will not. Kindly contact us to access the best services and enjoy our free quotes-without-commitment service.