What Is an Owner-Occupant?
An owner-occupant is a resident of a property who holds the title to that property. In contrast, an absentee owner carries the title to the property but does not live there. An absentee landlord is a type of absentee owner.
Key Takeaways
- Owner-occupantsare residents who own the property where they live.
- Some loans are only available to owner-occupants and not absentee owners or investors.
- To be considered owner-occupied, residents usually must move into the home within 60 days of closing and live there for at least a year.
- The U.S. Department of Housing and Urban Development (HUD) offers special programs for those who plan to be owner-occupants, such as the Good Neighbor Next Door Program, which offers a discount to first responders who live in a property for at least three years.
Understanding the Owner-Occupant Designation
When applying for a mortgage or refinancing, the lender will need to know if the borrower is going to be an owner-occupant or an absentee owner. Some types of loans may be available only to owner-occupants and not to investors. The application will usually state, “The borrower intends to occupy the property as his/her primary residence,” or some variation thereof when the borrower will be an owner-occupant. Generally, for a property to be owner-occupied, the owner must move into the residence within 60 days of closing and live there for at least one year.
An owner-occupant owns a property and resides at the same property, while an absentee owner does not live at the owned property.
Buyers do not qualify as owner-occupants if they are purchasing property in the name of a trust, as a vacation or second home, or as the part-time home or for a child or relative.
Homeowners usually are not required to notify their lender if they are moving out of an owner-occupied home in which they have lived for at least 12 months. The intent when applying for and receiving the loan is significant. If a buyer tells the lender that they plan to live in a home while knowing that they intend to rent it, that is considered occupancy fraud.
Special Considerations
Lenders may offer special programs to buyers who intend to live in a property rather than renovate and sell or lease it. For proof, such a buyer must sign an Owner-Occupant Certification document. The Owner-Occupant Certification form, also known as HUD-9548D, can be found on the U.S. Department of Housing and Urban Development (HUD) website. It must be signed by the property’s buyer and real estate agent and filed with the sale contract. Any submission of a false Owner-Occupant Certification on property risks hefty fines of up to $250,000 or imprisonment of up to two years.
There is some flexibility in lending guidelines for borrowers who intend to live in the home but need to move out within 12 months of the loan start date. Loan documents may specify minimum residency for some programs. For example, HUD offers a 50% discount on HUD-owned homes to firefighters, law enforcement, teachers, and emergency responders. The Good Neighbor Next Door Program encourages these professionals to move into revitalization areas. The HUD discount is connected to a three-year owner-occupancy requirement. Borrowers who leave before the period ends would owe HUD a prorated portion of the discount that they received.
Pros and Cons of Owner-Occupied Investment Property
Cons
Closer contact with tenants
Potentially more expensive insurance
Potentially roommates with your tenants
Living in the home that you invest and rent out can help you generate wealth quickly. Unfortunately, it also comes with the reality of either living with your tenants or, at the very least, having very close contact with your tenants—for example, if you’re in a duplex. Make sure that you consider your own personality and willingness to live with other people before you make the leap.
Is a Second Home Owner-Occupied?
No. A second home does not qualify as owner-occupied. If an owner decides later to make their second home their primary residence, then they could potentially refinance it at that point as their primary residence.
Does a Duplex Count as Owner-Occupied?
As long as you intend to live in part of the duplex as your primary residence, a duplex counts as an owner-occupied property.
Is a Home With an Accessory Dwelling Unit (ADU) Owner-Occupied?
Yes. If you, as the owner, are living in either the main home or the accessory dwelling unit (ADU), then a home with an ADU qualifies as owner-occupied.
The Bottom Line
Owner-occupied units give potential investors significant savings and the ability to climb the property ladder at a lower income than if they are just buying a home in which to live. The potential for rental income offsetting your own housing costs is attractive, but don’t forget the significant downside of living with your potential tenants. Make sure you know what you’re getting into before you sign on a deal that will make you a landlord to your roommates.
FAQs
An owner-occupant is a resident of a property who holds the title to that property. In contrast, an absentee owner carries the title to the property but does not live there. An absentee landlord is a type of absentee owner.
What is classified as owner-occupied? ›
An owner-occupied property is a piece of real estate in which the person who holds the title (or owns the property) also uses the home as their primary residence. The term “owner-occupied” is commonly associated with real estate investors who live in a property and rent out separate spaces to tenants.
What is the meaning of absentee owner? ›
An absentee owner owns a property, but doesn't live there or manage it. Or they own a business, but aren't actively involved in its day-to-day operations. In short, it's a hands-off investment approach.
What is the main problem with absentee landlords? ›
The main problem with absentee landlords is the potential for neglect and mismanagement of the property. Since the real estate owner is not physically present, issues like deferred maintenance and tenant dissatisfaction can arise.
What is a non owner occupant? ›
Non-owner-occupied is a property classification in real estate for properties that are not occupied by their owners. Generally, the classification is only used in residential real estate. The term is commonly used for single-family homes and condominiums that are owned but rented to tenants.
What is the legal definition of owner occupier? ›
: a person who owns the dwelling he or she lives in.
What is the difference between owner and occupier? ›
Owner or operator means any person who owns, leases, operates, controls, or supervises a stationary source. occupier in relation to a property, shall mean a person in actual occupation of the property, whether or not that person has a right to occupy the property.
Is absentee ownership allowed? ›
Absentee ownership allows individuals to own a business and earn profits while minimizing their involvement in its day-to-day operations. This ownership approach provides a flexible way to invest in or run a business that suits different circ*mstances.
What are the pros and cons of absentee ownership? ›
Benefits of absentee ownership include greater diversification of a real estate portfolio, but on the downside can be more costly to maintain and require reliance on third-party property management.
What are the absentees property laws? ›
Absentees' Property Laws. The absentees' property laws were several laws which were first introduced as emergency ordinances issued by the Jewish leadership but which after the war were incorporated into the laws of Israel.
An absentee landlord stands in contrast to an owner-occupied landlord: one who lives in the rental property.
What was an absentee landlord? ›
a person who rents a property to someone, but who does not live in or visit the property: Absentee landlords who fail to maintain their properties are bringing down property prices in the neighbourhood. (Definition of absentee landlord from the Cambridge Business English Dictionary © Cambridge University Press)
How do you deal with a lazy landlord? ›
Be Respectful
If your landlord is having difficulty, you have a right to demand the service that your lease terms and the law require. Be respectful but be firm and persistent. If you can't resolve repair requests or security deposits with the property owner, it may be time to turn to a lawyer.
What are the pros and cons of owner-occupied? ›
Living in a multi-family investment property can have both advantages and disadvantages. On the positive side, it allows owners to save on living expenses and maintain better control over their investment. However, it also presents downsides, such as a lack of privacy and potential conflict with tenants.
What is Hud's definition of owner-occupied? ›
Owner-occupants are residents who own the property where they live. Some loans are only available to owner-occupants and not absentee owners or investors. To be considered owner-occupied, residents usually must move into the home within 60 days of closing and live there for at least a year.
How much do you have to put down for non owner-occupied? ›
Because they're taking on a significant risk, financial lenders will generally require a 20% – 30% down payment from investment property borrowers wishing to apply for a non-owner-occupied mortgage loan.
What is owner-occupied examples? ›
For example, if an individual buys a house and lives in the house while renting out the basem*nt, the property is considered owner-occupied because the landlord lives in the property.
What is the true meaning of owner-occupied? ›
Owner-occupants are residents who own the property where they live. Some loans are only available to owner-occupants and not absentee owners or investors. To be considered owner-occupied, residents usually must move into the home within 60 days of closing and live there for at least a year.
What is the difference between owner-occupied and primary residence? ›
Owner Occupied / Primary Residence: According to HUD, a principal residence is a property that will be occupied by the borrower for the majority of the calendar year. At least one borrower must occupy the property and sign the security instrument and the mortgage note for the property to be considered owner-occupied.
What is the legal definition of occupied property? ›
Legally, the occupancy noun is defined as when a person has ownership or possession of land, a room, or a building that is actively living in or using it as a tenant or owner. The law also defines the word as the act of an occupant taking possession of abandoned property with the intention of claiming ownership.
