Sunday, December 9, 2012

How Occupancy Laws Can Affect Your Decision to Buy a Home

One of the primary reasons many renters think they aren't ready for home ownership is the perception that owning a home means settling down and doesn't afford the same flexibility as signing a lease. One reason behind this is because homebuyers typically seek the mortgage rate with the lowest possible interest rate and which requires the lowest possible amount down. Banks tend to offer better deals to owners who are purchasing the property as a primary residence, to encourage home ownership.

This puts potential homebuyers in somewhat of a Catch 22, especially in areas like Chattanooga where it's cheaper to own than to rent. On one hand, there's a lot of money to be saved in buying a home, and the potential to make a great investment on the right property. On the other hand, many professionals, especially young professionals just beginning their careers, are reluctant to be tied down to their current city. Horizontal and diagonal career trajectories often mean moving to a new city every few years for career advancement. A lease is a big enough commitment when you never know where your next big opportunity will pop up.

Occupancy requirements are often no more stringent than a lease. Occupancy of a primary residence is typically defined as being occupied by the borrower for the majority of the calendar year, with occupancy established within 60 days of closing and for one year thereafter. That's no worse than a standard one year lease, but with the benefit of having invested in something you still have ownership of after that year has passed.

The truth about signing a mortgage is that lenders understand that life is unpredictable. There's a big difference between a landlord committing fraud by applying for an investment property as if it were a primary residence and an individual who purchases a home fully intending to live in it, but being transfered unexpectedly. The consequences for mortgage fraud can be serious, but a genuine change in your occupancy for legitimate reasons can often be worked out with the lender.

In fact, it may actually be easier to explain an occupancy-affecting life change to your lender than to a landlord. Some leases only offer provisions to break the contract if the leaser dies or has to go on a tour of duty for military service, and don't even provide for contingencies like the purchase of a house or marriage. The important thing when handling a chance of residence as a mortgage holder is to always be upfront, to provide full documentation, and to never just vanish in the dead of night.