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Owner Occupied Financing: How It Works

By Tiffany Raiford

Many Pennsylvania residents are familiar with the concept of owner-occupied financing. However, even if you've heard the term in conversation, you might not be fully aware exactly what it means. The term owner-occupied financing sounds fairly straightforward, but the concept of financing a home in this manner is a little more involved than just the general meaning.

Owner-Occupied Financing

An owner-occupied home is one in which the homeowner occupies the property for the vast majority of a year. Essentially, it is a primary residence. Even if a homeowner has a second residence elsewhere, one with owner-occupied financing must be the homeowner's primary residence. For example, as a Pennsylvania resident, perhaps you are retired and have a second home in Florida where you enjoy spending the winter months to escape the bitter cold in favor of warm climates. As long as your Pennsylvania home is owner-occupied, it is your primary residence.

Price of Owner-Occupied Financing

In general, lenders prefer to hand out loans for properties that will be owner-occupied. The reason for this is the lower level of risk involved. When you are applying for a loan for a secondary home, the lender sees a bigger risk of owner walking away from the mortgage and leaving the bank with the home because you have another home. For this reason, owner-occupied financing is often less expensive. This type of financing requires a smaller down payment, and comes with better rates and better terms.

How Owner-Occupied Financing Works

When you apply for a home loan, your lender will ask whether or not this home is to be your primary residence. If the answer is yes, you will be given an owner-occupied financed loan. This loan works just like any other home loan; you will fill out the application, present your finances and go through all the paperwork, hoops and inspections any other homebuyers goes through. The benefit of this type of loan is that it is easier to acquire and less expensive in the long-run. However, should your bank find out you are not occupying this residence the majority of year, or 51 percent of the year, you could face legal troubles as this is mortgage fraud.

If you decide to apply for a home loan in Pennsylvania, be sure to talk to your lender prior to filling out any paperwork. Your lender will be able to tell you whether or not your intent for the home in which you are interested in purchasing qualifies you for an owner-occupied loan.

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