The Smooth Loan Process #2010-15

We'll Just "Say" I'm Going to Live There

One of my favorite Harold-isms is "If it doesn't make sense, it's probably not true". This came to mind the other day when my wonderful 13 year told me that the dog was the one the unlocked himself from his kennel, opened the freezer, ate a piece of chocolate, closed the freezer then locked himself back in his kennel. My son actually said this with a straight face. I like that the dog remembered to close the freezer.

Well, that doesn't make sense.

Same goes for whether your property that your purchasing is going to be owner occupied, second/vacation home or an investment property. Owner occupied properties get the best terms. Investment properties will require a larger down payment, higher closing costs and higher interest rate than the owner occupied properties. Second homes fall in between.

Statistics show that owner occupied loans have a lower default rate than the other two. It's in the bank's interest to make sure that if someone says they will live in the property, all of the provided documentation will support that. There are those people out there (Loan Officers included) that will try get better terms on the investment property they are purchasing by saying that it will be owner occupied.

First, the definitions. Owner occupied is just that. The person/people on the loan will actually live in the property as their primary residence. Technically, only one person on the loan has to live in the property. For example, parents co-signing for their kids. The parents are not living in the house but it is still owner occupied because the kid, who is on the loan also, is living in the house.

Second home is a home that is used by the owner to live in but not their primary residence. The general rule of thumb is that a second home will be located in a different metro area from the primary residence. In Arizona, it makes sense to have a primary residence in Phoenix and a second home in Flagstaff. It does not make sense to have a primary in Chandler and a second home in Glendale. Same metro area.

Investment is any property that will not be occupied by the owner. A property to be rented is obviously an investment property. Less obvious is a parent that buys a house for the kid to live in but the kid is not on the loan. This is an investment property even though it's family.

The bank underwriter is going to clue in on the intended occupancy of the property by the documentation that is required for the loan. For example, the source of your down payment. The source of the down payment is the single biggest indicator of your intent to occupy. If your down payment comes from the sale of your current home or from your savings, you are probably going to occupy. If your down payment comes from "some guy" who is not family, it's going to be questioned. Mysterious down payment is not normal for owner occupied homes so it doesn't make sense.

Another example is the person that "says" there are relocating from another State. But he does not have a new job or family or anything in the new State that would motivate him to move. That doesn't make sense. The address on your tax returns, w-2's, bank statements, pay stubs and driver's license can all be indicators of what the actual intent to occupy is going to be.

Of course, these are all just indicators and every scenario is different. Ultimately, if you tell the truth, you'll be fine.

The Smooth Loan Process lesson for today: If it doesn't make sense, then it's probably not true.
Bonus Lesson: You don't have to have a good memory if you tell the truth (I say that to my son all the time too!).

Harold Perkins
Galaxy Lending Group, LLC
602-595-1233
Harold@HaroldPerkins.com