There are new challenges and opportunities in the mortgage industry everyday. I have decided to pick a real scenario each week to help the general public better understand the changes that have taken place in mortgage lending. I choose this topic as I spoke to a potential client last week that was ready to sign the sales contract on Investment property but did not have any idea that he would need a 20% downpayment. It is difficult to obtain PMI or secondary financing on investment property so that means a downpayment of at least 20% which is dependent on FICO scores.
There are only 3 catagories of occupancy on mortage loans which is as follows:
Owner Occupied
· Also known as Primary Residence
· Eligible for homestead exemption
· This is the home where the borrower lives
· Co-borrower can be non owner occupant but program restrictions apply
Non Owner Occupied
· Borrower does not live in this home
· Property can be rented-also known as investment property
· Sometimes a family member lives in home
· Is not eligible for the homestead exemption
· Must do a conventional loan with at least 15-25% down
· Difficult to get PMI
· Difficult to obtain 2nd liens
· Must have strong cash reserves remaining after loan closes
· Must count full payment and cannot offset with a new lease
· Rate is higher than owner occupied
· Seller contribution is maximum of 2% of sales price
Second Home
· Typically in a vacation area
· Property cannot be rented
· Can be purchased if borrower stays in the home on a part time basis
· Rate and downpayment may be higher than the Primary home
· Not eligible for the homestead exemption
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