When applying for a mortgage, a borrower’s “Occupancy Type” is a major factor in the amount of down payment required, loan program available and mortgage interest rate.
Whether you are purchasing, doing a rate/term refinance or taking equity out of your property through a cash out refinance, occupancy type is always considered by the underwriter.
Three Types Of Occupancy:
Owner Occupied / Primary Residence –
According to the HUD Handbook 4155.1: 4.B.2.b, a principal residence is a property that will be occupied by the borrower for the majority of the calendar year.
At least one borrower must occupy the property and sign the security instrument and the mortgage note for the property to be considered owner-occupied.
Second Home –
To qualify as a second home, the property typically must be at least 50 miles from the primary residence, and it cannot appear that the real estate is being purchased for rental investment purposes.
Investment Property –
A property that is not occupied by the owner and is typically utilized for rental income purposes.
Down Payment Requirements:
Owner Occupied / Primary Residence –
Purchase for VA and USDA can go up to 100% financing, while FHA requires 3.5% of the purchase price as a down payment. Conventional financing may require anywhere from 5% – 25% depending on the credit score, county, property type and loan amount.
Second Home –
Average 10% down for a purchase, and 25% equity for a refinance.
Investment Property –
Down payment requirements will range from 20-25% depending on the number of units. When doing a cash-out refinance on an investment property with 2-4 units, the required loan to value will need to be 70% or lower to qualify.
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*It should be noted that on any high balance loan amount the above mentioned Loan-to-Value (LTV) requirements will change. Credit score requirements also apply.
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