Financing in 01262>Question Details

cherialli, Home Buyer in Stockbridge, MA

why is it more to buy house as investment property vs. owner occupied?

Asked by cherialli, Stockbridge, MA Mon Feb 18, 2013

It seems to be more to finance...

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Hello Cherialli, the reason it is more expensive for an investment is due to risk. Historically when a person has finacial issues, divorce, or any reason that cause a finacial hardship they are more likely to stop paying for an investment than they are their primary home. The lender is than forced to foreclose on that property and it costs a lot of money to foreclose on a home. By charging a higher interest rate the lender earns more income which helps defray the costs of all the foreclosures they have to go forward with. They require a larger down payment for 2 reasons. 1. people are less likely to walk away from a property when they have a large investment in it and 2. The lender may may make a profit on the foreclosure sale when they have to foreclose which helps them get some of the foreclosure money back when they sell it. Most of the time it is sold less than full value so if they do it would probably be only a small profit though. I hope that answers your question. Have a great day.

Gerry Davignon
Senior Loan Originator
Top Flite Financial, Inc.
1 vote Thank Flag Link Mon Feb 18, 2013
An investment property has a higher interest rate on a mortgage due to the risk factor. Most people if they run into a financial problem will pay their mortgage on the home they live in before paying the mortgage on an investment home.
1 vote Thank Flag Link Mon Feb 18, 2013
The Lenders view an Owner/Occupant as a lower risk; the investor can easily abandon the property.
1 vote Thank Flag Link Mon Feb 18, 2013
Risk. Plain and simple. If you get into a hardship which are you more likely to keep: the roof over your head or some property miles away.
0 votes Thank Flag Link Mon Feb 18, 2013
When you live in it, you will try to keep it.

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0 votes Thank Flag Link Mon Feb 18, 2013
If you have an FHA insured loan, you must occupy the dwelling within 60 days after closing and continuously occupy for at least 12 months.

You can live there for a while first, but because of certain guidelines I would say it would depend on the type of loan that was taken out..such as a conventional loan or FHA. You may also need to talk to your tax person to see if it would harm you when filing your taxes for the following year. If you plan on buying another property and using that property as your primary residence the property would have to be at a higher amount than what you paid for on your current property. The lender will look at the loan to see if it is a tangible benefit based on your situation.If you have a conventional loan, there are restrictions on qualifying for a loan backed by Fannie/Freddie to purchase another primary residence. Unless you can document that the home you wish to rent out has at least 30% equity, you must document that you have at least 6 months' reserves for BOTH mortgages (principal, interest, taxes, insurance, HOA if applicable) in order to qualify for the new mortgage. Rental income from the property to be converted to invetsment cannot be used for income qualifying unless you can document 30% or more equity in the home (using an appraisal, AVM, or Broker Price Opinion from your Realtor).
0 votes Thank Flag Link Mon Feb 18, 2013
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