Bank Loan Requirements - Owner Occupied Homes

Owner occupied properties generally secure mortgages that are to be used as the owner’s primary residence, according to the Federal National Mortgage Association (Fannie Mae or FNMA). In other words, these are homes where the owners affirm that they intend to live the majority of the time.

In today’s market, lending institutions are extremely cautious about offering real estate loans. Stricter underwriting guidelines, a greater demand for loans, federal rule regulations, and transaction costs all play a role.

Owner Occupied Loans

Owner occupied loans are secured by the first mortgage in Wisconsin or a deed of trust in other states, on the property, usually by the borrower who will be living in the home. The monthly payments cover the principal and interest payments on the loan. Banks typically require that the owner live in the dwelling 50% -100% of the time. Owner-occupied loans are typically priced with long-term, fixed rate interests. For several years, the financing and purchase of real estate has been an incentive to buyers.

Owner occupied loans have become increasingly popular over the years. Properties available through agencies, such as Madison Wisconsin Home Sales, create exciting opportunities for home purchases. Lending institutions recognized some security in providing loans to buyers where the real property may be used as collateral. Usually there is less risk for the lending institution because it is less likely the borrower will abandon their home.

Underwriting and Second Home Guidelines

In order to experience a smoothly running loan transaction, it is necessary to understand the underwriting guidelines and the definition of an owner occupied loan. The majority of loan agencies provide underwriting based on annually published FNMA guidelines. It is also possible for co-signers and mortgage guarantors to be included as owner-occupants, even when they are not living in the home.

The features of an owner-occupied mortgage vary from the investor type to the second home variety. Home buyers need to understand the rules governing both types in order to avoid problems with underwriting and the possibility of being denied for a home loan.

Second-home mortgages are usually located in an area that is considered a resort or vacation area, usually more than one hundred miles away from the main home. According to guidelines, the property may not include any form of rental agreement, nor may it be managed by a company; otherwise it would be considered an investment property mortgage.

Since loans are usually lower for owner-occupied mortgages, underwriters are aware that investors may be attempting to borrow at a lower rate by falsely buying or refinancing a home as a secondary or a primary dwelling. The underwriters apply FNMA tests on the property to ensure true occupancy procedures. With the possibility of loan rates being adversely affected, it is essential to note that mortgage fraud is a federal offense and severe penalties can apply.