If you want to invest in real estate but are unsure about what kind of mortgage to receive, you might choose a pro property mortgage. Let's look at their primary differences so you can make an educated choice for your South Floridian rental home.
What Is an Owner-Occupied Property?
Owner-occupied residential property is one where the owner lives there. It serves as the owner's principal dwelling, in other words. The owner's name appears on the title when a property is owner-occupied.
In other words, you have a non-owner occupied property on your hands if you buy a Central Florida property but don't plan to live there. Then Your property qualifies as an inhabited commercial property; for example, if you purchase a one-family home, hire a property management company to take care of its ongoing needs, and live elsewhere.
Why Is Determining the Status of the Property Important?
Since the interest rate depends on whether a property is owner-occupied or not, it is crucial to ascertain this. Owner-occupied properties typically have better terms because the default is less likely. When a borrower misses a payment due, a default occurs.
Since the owner must eventually occupy owner-occupied homes, lenders believe there is less risk. Recall that you must sign the HUD-9548D if you purchase a property in the US. According to this paperwork, you must have lived on the land for at least a year. Additionally, there is a reduced likelihood of default if homeowners fail.
Why Are Loans For Property Not Owned By Borrowers More Expensive?
Non-owner occupied properties typically have higher interest rates. The reason is that investors who have no intention of relocating possess them. Real estate investors are more prone to miss monthly payments than owner-occupied properties where the owner's home is kept as security. After all, they won't become homeless if they don't make payments.
Lenders can also demand a sizeable down payment from borrowers who own non-owner-occupied houses in addition to the interest rate. If the real estate investor defaults, they take this precaution to save themselves.
Are Non-Owner Occupied Mortgages Required?
You can seek advice from your property management firm on the best kind of mortgage to get for your particular circumstances. However, in general, you must obtain a non-owner-occupied mortgage for your single-family home, townhouse, or more. If you intend to live in one of the property's units while renting out the others, you may be eligible for a mortgage for an owner-occupied home.
What Benefits and Drawbacks Do Owner-Occupied Rental Properties Offer?
You'll be able to receive cheaper loan rates and smaller down payments with an owner-occupied property, but like any investment, it has advantages and disadvantages. Let's look at them so you can decide which is best for your particular situation:
Benefits of Owned Rental Properties
Being an owner-occupant with the ability to consolidate your loans can be advantageous. Owner-occupied rental homes are a good option for several reasons, some of which are included below:
Keep up with your maintenance. You can attend to all of your renters' needs because you reside on-site. For instance, they can report the issue immediately if there is a water leak. Additionally, since they did agree to it in the lease agreement, you may be sure that your tenants are genuinely taking good care of the rental.
Negative aspects of owner-occupied rental properties
For the following reasons, not all owners of rental properties are owner-occupants:
Tenants Are Hard to Find. Tenants will undoubtedly be difficult to persuade to become your neighbors. Fortunately, working with a good property management company will help you to minimize this.
Numerous complaints. Be prepared to get daily maintenance reports, complaints, and other things from renters. Expect your tenants to look to you as their go-to repairman when something breaks since you live next door.
Avoid Engaging in Occupancy Fraud
You can run an owner-occupied rental and earn reduced interest rates simultaneously, but if you don't plan to live there, you shouldn't get a mortgage for an owner-occupied rental. Keep in mind that owner-occupied rentals only function when the owner occupies one of the units. As a result, if you own a multifamily building with four flats, you can live in one of them while renting the other three out to tenants.
