Cameron Miranda
Owner-occupied properties refer to a property where the title holder and owner use the home as their primary residence. In the United States, an owner-occupant is a resident of a property who holds the title to that property, while an absentee owner carries the title to the property but doesn't live there. An owner-occupied setup can provide an entry point for beginners looking to invest in real estate. It offers more loan choices and more affordable financing options. However, there are specific laws and regulations that govern owner-occupied properties, such as the requirement to move into the property within 60 days of closing on the mortgage and residing there for at least a year. Additionally, laws like the Rent Stabilization Ordinance (RSO) and Just Cause Ordinance (JCO) outline the conditions under which a landlord can recover possession of a rental unit for owner occupancy.
| Characteristics | Values |
|---|---|
| Definition | An owner-occupied property is where the title holder and owner use the home as their primary residence. |
| Benefits | More loan choices, more affordable financing options, and the possibility of earning regular, recurring revenue by renting out spare rooms. |
| Requirements | To qualify as an owner-occupant, you typically need to move into the property within 60 days of closing on your mortgage and live there for at least 12 months. |
| Special Programs | The U.S. Department of Housing and Urban Development (HUD) offers special programs for owner-occupants, such as the Good Neighbor Next Door Program, which provides discounts to first responders who live in a property for at least three years. |
| Eviction | Laws vary by location, but generally, landlords cannot evict tenants who are senior citizens, have disabilities, or have lived in the apartment for a certain number of years (this number varies by location). |
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What You'll Learn
Owner-occupied vs absentee landlords
An owner-occupant is a resident of a property who holds the title to that property. They must move into the residence within 60 days of closing and live there for at least a year. Owner-occupied units give potential investors significant savings and the ability to climb the property ladder at a lower income than if they were buying a home in which to live. The potential for rental income offsetting housing costs is attractive, but there is a significant downside to living with tenants. Mortgage lenders may offer special programs to buyers who intend to live in a property rather than renovate and sell or lease it.
In contrast, an absentee landlord is a type of absentee owner. Absentee ownership in residential real estate often refers to a situation where an individual owns a property but does not occupy or directly manage it. They may be investors who have invested in rental properties, inherited properties, or own vacation homes that they do not reside in year-round. Absentee landlords may face challenges in maintaining their properties and keeping tenants satisfied, especially if they are managing properties from afar. They must rely on third-party property management companies to handle routine inspections, regular check-ups, and maintenance tasks, as well as tenant maintenance requests and rent collection.
The laws and protections for tenants vary depending on the location and type of tenancy. For example, in New York City, a landlord may evict a senior citizen for the purpose of owner occupancy if the tenant is provided with an equivalent or superior apartment at the same or lower rent in a nearby area. However, in rent-controlled apartments statewide and in rent-stabilized apartments outside of New York City, a landlord may not evict a senior citizen, a person with a disability, or anyone who has lived in the apartment for 15 years or more for purposes of owner occupancy.
Overall, owner-occupied landlords have the advantage of being physically present in their properties, which can lead to cost savings and easier management. On the other hand, absentee landlords may face challenges due to their distance from the property and reliance on third-party management, but they have the flexibility of investing in properties outside of their local area.
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Eviction laws
An owner-occupied property is one where the owner holds the title to the property and resides there. In the US, an owner-occupant must typically move into the property within 60 days of closing and live there for at least a year.
In the case of rent-controlled apartments in New York, a landlord may not evict a senior citizen, a person living with a disability, or anyone who has been living in the apartment for 15 years or more for purposes of owner occupancy. In New York City, a landlord may evict a senior citizen for this purpose only if they are provided with an equivalent or superior apartment at the same or lower rent in a nearby area.
In Los Angeles, the Rent Stabilization Ordinance (RSO) & Just Cause Ordinance (JCO) allow a landlord to recover possession of a rental unit for use as their primary place of residence or that of their spouse, grandchildren, children, parents, grandparents, or resident manager. To do so, the landlord must possess legal title to at least 25% of the property containing the rental unit. A landlord may recover possession of a rental unit for an eligible family member only once per rental complex they own. The landlord must intend to occupy the rental unit within three months of the tenant vacating and must occupy it as their primary place of residence for at least two consecutive years.
In California, a Protected Tenant is someone who has continuously resided in a rental unit for at least ten years and is either 62 years of age or older, disabled, or handicapped, or is terminally ill. A landlord may not recover possession of a rental unit occupied by a Protected Tenant.
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Rent control and stabilization
Rent Control
Rent control laws limit the amount that a landlord can increase rents on existing tenants. These laws are usually enacted by local municipalities, and the details vary widely. As of 2024, 33 states have laws that forbid local governments from enacting rent control measures, while only nine states and Washington D.C. have rent control policies in place.
Rent control regulations typically govern price increases for lease renewals, rather than new tenants. This allows landlords to charge market rates for vacant apartments. In New York City, for example, rent-controlled apartments are generally in buildings constructed before 1974, where the tenant has been in continuous occupancy since 1971 or earlier.
Rent Stabilization
Rent stabilization laws are similar to rent control laws in that they protect tenants from sharp increases in rent. However, they differ in that rent stabilization laws do not impose rent freezes but rather set limits on rent increases. In New York City, for example, rent stabilization laws were enacted in 1969 to address sharply rising rents in many post-war buildings. Today, about one million apartments in the city are covered by rent stabilization.
In New York City, an owner may refuse to renew a rent-stabilized tenant's lease if they intend to use the apartment as their primary residence or as a primary residence for their immediate family. However, landlords must provide written notice of non-renewal at least 90 days before the current lease term expires. Additionally, tenants in rent-stabilized apartments have the right to renew their leases.
Tenant Protections
Both rent control and stabilization laws provide tenants with certain protections against unfair rent increases and unlawful evictions. For example, in New York City, landlords cannot evict senior citizens, individuals with disabilities, or long-term tenants (15 years or more) from rent-controlled or stabilized apartments for purposes of owner occupancy unless they provide an equivalent or superior apartment at the same or lower rent in a nearby area.
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Tenant rights
An owner-occupied property is one where the landlord lives in the same building as their tenants. While this arrangement can offer financial benefits to the landlord, it is important to be aware of the rights of tenants, which are protected by law.
In the United States, tenant rights can vary depending on the state, county, and town in which the rental property is located. For example, in New York, there are two types of rent regulation: rent control and rent stabilization. These regulations give tenants certain rights, and they apply to both unregulated and regulated apartments.
Tenants have the right to a safe, livable, and sanitary apartment, which is implied in every written or oral lease. Landlords are required by law to disclose any known information about lead-based paint or lead-based paint hazards before a lease is signed. Federal law also mandates that landlords provide tenants with a pamphlet on how to protect themselves from lead exposure. Additionally, in New York City, landlords must comply with the Childhood Lead Poisoning Prevention Act, which requires them to inspect apartments for lead-based paint hazards if a child under seven years old lives there.
Tenants cannot be unlawfully evicted, and landlords who use illegal methods to force a tenant out are subject to criminal and civil penalties. In New York, landlords cannot evict senior citizens, individuals with disabilities, or long-term tenants (those who have lived in the apartment for 15 years or more) for the purpose of owner occupancy without providing an equivalent or superior apartment at the same or lower rent in the same area.
Furthermore, tenants have the right to dispute any rent increases. In New York, landlords are no longer permitted to increase rent by 20% when a unit becomes vacant, nor can they take an apartment out of rent regulation when the rent exceeds the "high-rent threshold." Tenants can challenge the deregulation of their apartment and the rent being charged by checking their rent history.
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Loan and mortgage options
When it comes to owner-occupied properties, there are several loan and mortgage options available. Owner-occupied properties generally refer to properties where the owner resides and holds the title. This is in contrast to absentee owners, who carry the title but do not live on the property.
Conventional Loans
Conventional loans are not backed by the government and come with stricter requirements. Lenders typically require a minimum credit score of 620 and a debt-to-income (DTI) ratio of 50% or less. Down payments can be as low as 3%. It's important to read the fine print, as lenders often have specific owner-occupancy stipulations.
Federal Housing Administration (FHA) Loans
FHA loans are advantageous for owner-occupied properties. They allow for lower down payments (3.5% for borrowers with a credit score of 580 or higher), more flexible DTI requirements, and competitive interest rates. However, the property must be used as the primary residence, and owners must move in within 60 days.
Owner-Occupied Mortgages
Mortgage lenders often offer special programs for owner-occupied properties, providing lower interest rates and other benefits. To qualify, buyers must sign an Owner-Occupant Certification document (HUD-9548D), stating their intention to occupy the property as their primary residence. There is some flexibility, as buyers may be allowed to move out within 12 months of the loan start date.
Hard Money Loans
Hard money loans, such as those offered by Marquee Funding Group, are another option for owner-occupied properties. These loans are often used by individuals who cannot obtain conventional loans due to poor credit, high debt ratios, or other unique circumstances. They offer quick access to cash and more flexibility in terms of credit scores and debt ratios.
It's important to note that the specific loan and mortgage options may vary depending on your location and individual circumstances. Be sure to carefully review the terms and conditions of any loan or mortgage product before making a decision.
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Frequently asked questions
An owner-occupied property is a property where the title holder and owner use the home as their primary residence. This can include an owner who rents out spare rooms to tenants while living on the main floor of the house.
Owner-occupied properties offer more loan choices and more affordable financing options. They also present the possibility of earning regular, recurring revenue by renting out spare rooms and acting as a landlord for tenants.
Sharing your home with tenants may not be ideal for owners with young children. It may also be harder to find renters, as prospective tenants may not want to live with a landlord. Being a landlord is also a time-consuming task, and managing rental properties can be complicated.
The laws around owner-occupied properties vary depending on the location and specific circumstances. In some cases, there may be special programs or discounts available for owner-occupants. In other cases, there may be restrictions on renting or leasing the property. It is important to review the specific laws and regulations in your area.
