Owner-occupied loans are granted to borrowers under the stipulation that the person resides in that property. Under the guidelines of an owner-occupied loan, a borrower agrees to stay at the property for a year, move in within a month of closing, and reside there for at least 70% of the time at the property. Vacations are omitted from this guideline, and a borrower must prove they work within 50 miles of the property. If falling under these stipulations, an owner-occupied loan is a great avenue for potential homeowners.
Benefits of an Owner-Occupied Loan:
Read below for some major reasons to consider an owner-occupied loan, especially for potential borrowers and potential homeowners.
- Easily Available Financing:
Since there is less risk associated when the borrower is residing in the investment property, lenders are much more likely to approve owner-occupied loans than other forms of financing. Instead of a second house, it is easier for a borrower to find a lender for an owner-occupied property, increasing availability of funding.
- Low-Interest Rates:
Due to the fact that the borrower has a commitment to stay at the property, investors know there is more buy-in than other forms of financing. This means that owner-occupied loans come with much lower interest rates than other types of loans.
- Lower Capital Gain Tax:
Due to the nature of residing in the property, investors can expect a lower capital gain tax with their real estate investment. This allows investors to maximize investments.
- Property tax deductibility:
As it is the primary residence of the investor, it allows the property to be deducted from taxes, freeing cash flow for other ventures.
- Homestead Exemption:
Since the investor is primarily living on the property, this means the real estate investment falls under the homestead exemption, providing some protection from creditors by state.
- One Mortgage Vs. Two Mortgages:
Instead of having two properties and two separate mortgages, investors only need one mortgage for both their primary residence and their investment property. This can be especially beneficial for new real estate investors seeking to manage their property investments.
- Easy Rental Capabilities:
As long as you are the primary resident, renting out portions of the property can provide you stable income without an extra mortgage.
- Effective Property Management:
As an owner-occupied loan requires the borrower to be the primary resident of the property, if a portion of the real estate is rented, this allows the owner to be an effective landlord. For example, if a tenant has an emergency, the landlord is physically present to deal with it at any time.
- Increase in Loan Availability:
In the case of loans, oftentimes owner-occupied properties have a wider breadth of loans to choose from, stemming from borrower’s trust of property owners. Some loan forms are exclusively available to owner-occupied properties.
- Real Estate Experience:
For new homeowners or real estate investors, this is a great way to break into real estate for those not well-versed in real estate investment. Investing time spent in the property can make you present the best decisions for your property.
- Beneficial Commercial Real Estate:
For those looking to utilize real estate for their business, owner-occupied can be a great option for financing their property. Clear expectations and low-interest rates can be attractive for commercial businesses.
- Positive Portfolio Management:
As the owner-occupied property has a lower interest rate than some other forms of loans, it is easier to see which form of owner-occupied can work. Paying the mortgage monthly can help establish credit for further investment ventures.
Bottom line: Look for owner-occupied loans if you are looking to reside in the property, both commercially and residentially, and want a low-interest option to jump-start your portfolio. Let us help you with your owner-occupied loan today at JMJ Funding!
