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Pros & Cons of the Owner-Occupant Model 

If you’re ready to secure financing, you probably already know there are several different loans out there to consider.

The owner-occupant model is one type of financing that can be extremely beneficial to certain buyers in certain situations.

In the case of a multi-family property, with the owner-occupant model the owner lives in the property as their primary residence, but also has the option of renting out the remaining units as rental income.

The pros

The owner-occupant model is often quite beneficial and attractive to buyers. For instance, with this type of financing, the owner likely qualifies for

  • Lower interest rates
  • Lower fees & penalties
  • Smaller down payment
  • Possible homestead exemption on property taxes
  • Deductible mortgage interest and property tax

Altogether, this means the property may be less expensive upfront and over time.

Another benefit to the owner-occupant model is you save money because you’re not required to take out two mortgages. If you live in your investment property, you don’t need one mortgage to buy a home for yourself and another for your investment property.

There are also additional pluses to living in the property full-time, including things like better efficiency in handling 

  • Maintenance & upkeep
  • Tenant situations
  • On-site emergencies

In particular, the owner-occupant model can be a really good option for someone who’s hoping to buy their very first rental property. 

The cons

While there are obviously plenty of benefits to the owner-occupant model, there are potentially also a few drawbacks to consider.

The biggest issue is actually occupying the property. 

If you purchase a property using owner-occupant financing and don’t actually ever live there, it’s considered fraud. 

Drawbacks of the owner-occupant model include

  • The requirement to live in the property for a certain period of time
  • The requirement to live in the property the majority of the time

In other words, you cannot use the property as a vacation home. It has to be considered your primary residence for a certain amount of time.

With an owner-occupant property, there are also some additional financial considerations.

You’re not able to deduct all the costs of maintaining the property.

While you may qualify for some deductions, you’re only able to deduct the costs associated with your tenants. This potentially means a more complicated tax filing later on. 

The owner-occupant model also means

  • Sharing a property with tenants
  • Potentially less privacy
  • Dealing with tenant demands

Anyone considering the owner-occupant model needs to carefully consider all the pros and cons of the process before determining if it is the right situation.

While this type of financing is certainly beneficial, you’ll want to understand all you can about the process before signing on the dotted line.

About the author

I am from Chicago, IL and I have been lending in this area for 20+ years. My team and I strive to give you an enjoyable mortgage experience while providing you the best programs and rates! I am also offering a FREE mortgage analysis to determine if refinancing is right for you.