Alternate definition: Owner-occupant is the opposite of an absentee ownerAlternate name: Owner-occupier
How Does Being an Owner-Occupant Work?
When you’re purchasing a multi-unit property, some mortgage programs will require you to be an owner-occupant. This includes home loans from the Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA) loans, and U.S. Department of Agriculture (USDA) loans. If your loan program has an owner-occupancy requirement, you will be asked to certify that you will live in the residence for a specified amount of time. For a Department of Housing and Urban Development (HUD) property, for example, the certification requires at least 12 months. For other programs, like the HUD Good Neighbor Next Door, the occupancy requirement is three years.
Pros and Cons of Being an Owner-Occupant
Pros Explained
More loan options and favorable rates: Being an owner-occupant allows you access to more loan programs, including FHA, VA, and USDA loans. It also could mean getting better interest-rate offers on conventional loans because lenders view owner-occupants as less risky than absentee owners. Rental income to cover home expenses: Living in a home that has rental units can bring in a steady income stream that can help cover the mortgage and other costs. You’re present on-site to manage any issues that arise: Living in the same property as your tenants means being able to address needed repairs quickly, as well as ensuring that the property is being cared for and maintained well.
Cons Explained
Potential tenant challenges: There is always the risk that a tenant might not be able to pay their rent, or might be disruptive by being noisy or damaging property.Fewer tax write-offs: When you are an owner-occupant, you don’t get as many tax deductions for property management as you would if you didn’t live on the premises.
What Being an Owner-Occupant Means for Property Owners
If you’re thinking of purchasing a multi-unit home that also will earn rental income, deciding if you want to be an owner-occupant is one of the major decisions to make. It will not only affect your lifestyle and income, it further will affect the types of loans you can qualify for and your overall finances. Though it may be tempting to falsely claim you will be an owner-occupant to take advantage of better interest rates and loan programs, or to try to secure a mortgage for a family member who can’t otherwise qualify, doing so would mean you were committing fraud—and there are serious consequences for that. Be sure that if your loan program requires you to sign an occupancy certification that you continue to live at the property for the required amount of time (usually 12 months or more).
