Most mortgages are contingent on the occupancy stated in the application.
A mortgage loan for an owner-occupied residence usually has better rates and terms than a mortgage for a second home or investment property. A change in occupancy type can violate the terms of the owner-occupied home loan, causing it to go into default, even if all payments have been made on time.
Owner-Occupied Borrowers Must Occupy
An owner-occupied mortgage will typically specify that the applicants must be residents of the home. Should they vacate, add other owners or permit others to occupy the home, their mortgage terms may be considered in default. Some lenders may permit you to keep the mortgage if you contact loan servicing and explain a potential change in occupancy. If your reasons are sound, your lender might approve the change in occupancy.
Occupancy Is Important
Whether owner-occupied, a second home or an investment property, active occupancy is critical. Lack of occupancy is even more important. Unoccupied homes are unacceptable for numerous reasons. Homes with no occupants are subject to burglary, vandalism, fire and natural disasters. Insurance companies will be just as "disappointed" as mortgage lenders about this condition. Insurance companies may not cover losses on unoccupied properties and void policies. This condition could also put your mortgage in default.
Non-Occupant Borrowers
Most owner-occupied mortgage loan terms frown on or prohibit non-occupant borrowers. Some lenders, however, may permit non-occupant applicants. Once again, you must present your "case" in a clear and reasonable manner. Of course, investment home mortgages permit non-occupant borrowers for obvious reasons. But, owner-occupied mortgages require all applicants to physically occupy the subject property. Should you need the income or credit score of a non-occupant borrower, be sure to ask your prospective lender for permission before you make application.
Fraud Prevention and Quality Control
Mortgage lenders are diligent about verifying that applicants will occupy subject properties. They may not be the experienced private detectives of great mystery novels, but mortgage underwriters look for red flags. Examining other mortgages and credit reports can deliver a wealth of information. For example, you might see a borrower who owns a large home applying for a modest mortgage loan. The borrower then states that he will occupy the smaller home as a primary residence. They may need a solid, verifiable reason for their move to a more modest home, regardless of their income or wonderful credit report. Be prepared to prove that you will occupy the subject property, if asked.
