If You’re Going to Claim to “Owner Occupy” Your Home, You Better Mean It

More and more, people are finding that their intent to occupy a home when getting a mortgage may not mean what they think it means.  More and more, loan officers are mralso finding out that it may not mean what they think it means.  One of the Mortgage Loan Officer national testing questions asked what intent to occupy meant and the correct answer, for testing purposes, was that the buyer would have to move in within 60 days.  Now, both on refinances and on purchases, it’s becoming important to know how long one will be staying there as well.

While not all lender’s guidelines are the same on this matter, at least at this point, here’s a sample of one of the top 10 lenders whose name, if I mentioned it, you’d definitely know:

“If borrower applies for an owner occupied transaction after closing on a previous owner occupied transaction with INSERT LENDER’S NAME HERE on a different property in the last 12 months, the new transaction will be ineligible. This guideline will not apply if the previous property has been sold or refinanced as a non-owner occupied residence. For owner occupied transactions, the borrower warrants he or she will occupy the property for at least 12 months.”

Many other lenders are adopting similar guidelines and don’t be too surprised if there ends up being a universal guideline that addresses this for all lenders.

The problem with this is the question on the loan application, “Do you intend to occupy the property as your primary residence?”  It’s a yes or no question not a “yes and by the way I warrant that I’ll be there for 12 months even though I can’t predict the future” question.  To make things worse, the disclosure notices state, “This is to certify that I/we do intend to occupy the subject property as it is my/our primary residence. I/We hereby certify under penalty of U.S. Criminal Code Section 1010 Title 18 U.S.C., that the above statement submitted for the purpose of obtaining mortgage insurance under the National Housing Act is true and correct.”  It doesn’t say we intend to occupy the property for at least 12 months.  In short, when neither the lender’s nor the borrower’s intentions are absolutely clear, terrible consequences can occur and the way transactions are currently handled, it’s not absolutely clear.

However, the Uniform Mortgage Instrument is clearer on the topic.  It states:

“Borrower shall occupy, establish, and use the Property as Borrower’s principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower’s principal residence for at least one year after the date of occupancy, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exist which are beyond Borrower’s control.”

Sadly, this is only small print at the end of the transaction that nobody reads.

This is shipwrecking a lot of purchases and is starting to have very close attention paid to it.

Sadly, because of this lack of clarity in a sometimes maddeningly hilarious lending process, it’s incumbent upon the borrower to ensure that the act of expressing intent to occupy is truly consistent with their short and intermediate term plans to avoid these consequences.  Mortgage investors are going to the trouble of disclosing their wishes in the form of private guidelines but they’re not disclosing their plan of action should the consumer fail to read their minds down the road.

SO THE MORAL OF THE STORY IS:  Be sure, if you’re planning to or accidentally have ended up in a situation where, you’ll be claiming occupancy on 2 loans in 12 months, . . . . consult a loan officer who’s familiar with this potential complication.

Charles Dailey – Branch Manager, Loan Officer, Certified Military Housing Specialist – CA DOC, MN DOC & WI DFI

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Comments 1

  1. Mark C

    Very well put Charles. I am hopeful that all of our LO’s read and apply this in up-front discussions with prospective borrowers and their realtors. Doing so in the right fashion sets our LO’s apart from the rest, displays a leval of professionalism and depth of understanding, and permits our target audience to proactively address. And protects the company ‘shield’ while doing so.