When you are applying for a mortgage loan, your “occupancy type” becomes a major factor in the actual amount of the down payment that is required, the loan program available & the mortgage interest rate. Whether you are buying, doing a term or rate financing/ taking equity out of the property via cash-out refinance- the underwriter will always take the “occupancy type” into consideration.
Types of Occupancy
There are 3 types of occupancy:
Owner Occupied or Primary Residence – As per the HUD, a primary residence is essentially a property which a borrower will occupy for a larger part of the calendar year. At least 1 borrower has to occupy that property & sign the security instrument as well as the mortgage-note for that property to be considered as “owner-occupied”
Second Home – In order to qualify as a 2nd home, typically, that property should be a minimum of 50 miles from your primary residence. The real-estate should not be acquired for rental investment purposes
Investment Property- This type of property is not occupied by the owner and is used only as source of rental income
Down Payment Requirements
The down payment that you make will be dependent on the type.
Primary Residence – Purchases for VA & USDA can go upto 100% financing, while the FHA requires 3.5 percent of the purchase price as down-payment. Conventional financing might require the down payment to be in the 5% – 25% range, based on the credit score, property type, county and the loan amount
Second Home – An average 10 percent of a down-payment is required for a purchase, and 25 percent equity for any refinance
Investment Property – The down payment requirement can be the 20-25% range based in the total number of units. When you are doing a cash-out refinance on any investment property for 2-4 units, the required loan-to-value will have to be 70percent /lower to qualify.
Note- For any kind of high-balance loan amount the mentioned LTV- Loan-to-Value requirements will undergo a change. Certain credit score requirements will also be applicable. To understand more about how the property type affects your down payment, contact ResMac Home Loans today.