Owner-Occupant

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-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.
  • 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.

How an Owner-Occupant Works

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

Pros
  • Tax savings

  • Access to U.S. Department of Housing and Urban Development (HUD) buying assistance programs

  • Access to HUD foreclosures

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.

Article Sources
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  1. U.S. Department of Housing and Urban Development. "About Good Neighbor Next Door."

  2. Rocket Mortgage. “Understanding Owner-Occupied Properties: What Investors Should Know.”

  3. U.S. Department of Housing and Urban Development. “Certification for Individual Owner-Occupant Buyers.”