What Is an Owner-Occupant?
Let me explain what an owner-occupant is: you're an owner-occupant if you live in a property that you hold the title to. On the other hand, if you own the title but don't live there, you're an absentee owner, and that includes absentee landlords who rent out properties they don't occupy.
Key Takeaways
As an owner-occupant, you own the property where you reside, and this status opens doors to certain loans that aren't available to absentee owners or investors. Remember, to qualify, you typically need to move into the home within 60 days after closing and stay there for at least a year. The U.S. Department of Housing and Urban Development (HUD) has programs tailored for owner-occupants, like the Good Neighbor Next Door Program, which gives discounts to first responders who commit to living in the property for three years.
Understanding the Owner-Occupant Designation
When you're applying for a mortgage or refinancing, the lender will ask if you'll be an owner-occupant or an absentee owner, because some loans are restricted to those who plan to live in the property and not to investors. You'll see statements on the application like 'The borrower intends to occupy the property as his/her primary residence,' and for it to count as owner-occupied, you have to move in within 60 days of closing and live there for at least one year.
It's important to note that you don't qualify as an owner-occupant if you're buying in the name of a trust, as a vacation or second home, or as a part-time place for yourself or a relative. Also, if you've lived in an owner-occupied home for at least 12 months, you usually don't need to tell your lender if you move out. But the key is your intent at the time of the loan—if you say you'll live there but plan to rent it out instead, that's occupancy fraud.
Special Considerations
Lenders often have special programs for buyers who will live in the property rather than flip or rent it out, and you might need to sign an Owner-Occupant Certification, like HUD-9548D, which you can find on the HUD website. This form, signed by you and your real estate agent, goes with the sale contract, and submitting a false one can lead to fines up to $250,000 or up to two years in prison.
There's some leeway if you need to move out within 12 months, depending on the loan guidelines. For instance, HUD's Good Neighbor Next Door Program offers a 50% discount on HUD-owned homes to professionals like firefighters, law enforcement, teachers, and emergency responders who move into revitalization areas, but it requires three years of occupancy—if you leave early, you'll owe a prorated share of the discount back to HUD.
Pros and Cons of Owner-Occupied Investment Property
Investing in a property you live in can build wealth fast through rental income, but it means dealing closely with tenants, especially in setups like duplexes. On the positive side, you get tax savings, access to HUD buying assistance programs, and opportunities with HUD foreclosures. However, the downsides include being in close contact with tenants, possibly higher insurance costs, and even sharing living space with them as roommates. Think about your personality and how well you handle living with others before committing to this.
Common Questions About Owner-Occupied Properties
You might wonder if a second home counts as owner-occupied—no, it doesn't, but if you later make it your primary residence, you could refinance it as such. For a duplex, it qualifies as owner-occupied as long as you live in one part as your primary residence. Similarly, a home with an accessory dwelling unit (ADU) is owner-occupied if you reside in either the main home or the ADU.
The Bottom Line
Owner-occupied properties offer investors big savings and a way to build property ownership on a lower income, with rental income potentially covering your housing costs. That said, the drawback of living near or with your tenants is real, so make sure you understand the commitment before becoming a landlord to your own roommates.
