An owner-occupancy clause in a mortgage requires home buyers to move into the property within 60 days of closing and live there for at least 6 to 12 months. This clause differentiates between primary residences and investment properties, significantly influencing interest rates. Higher interest rates typically apply to investment properties, making the verification of owner-occupancy essential to prevent mortgage fraud. Homeowners seeking to rent their property within the first year must obtain lender approval, potentially needing to refinance their mortgage if not approved.
An owner-occupancy clause is a specification on a mortgage loan stating that the owner of a house must live on that property for a certain period of time - usually 6 to 12 months.
An owner-occupancy clause helps mortgage lenders differentiate between whether the home is a primary residence or an investment property - an important distinction when issuing a loan and establishing an interest rate.
Since interest rates are typically higher for an investment property, an owner-occupancy clause prevents borrowers from securing a lower rate for a primary residence and immediately renting it out.
If an owner wants to rent within the first year after moving in, they'll need to ask their lender for approval, which may require refinancing their mortgage.
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