A key reason for the higher default probability is that the property is not occupied by the owner as a residence. This is because borrowers of non-owner-occupied mortgages tend to experience a higher probability of default.

The distinction between owner-occupied and non-owner-occupied is important for real estate lenders to determine the interest rate they should charge on a mortgage.Īll else being equal, non-owner-occupied mortgages carry higher interest rates and down payments than owner-occupied mortgages.

Lenders require a higher interest rate and down payment on non-owner-occupied properties to compensate them for the higher probability of default.Ī mortgage on a property in which the owner does not reside is known as a non-owner-occupied mortgage.

Non-owner-occupied properties tend to see a relatively higher probability of default than owner-occupied properties.

Non-owner-occupied properties are not occupied by owners as a residence and are generally held for investment purposes.

However, the rules vary depending on the region in question. Beyond four units, a property cannot be considered owner-occupied unless the owner occupies a majority of the units. Generally, only properties with up to four units can be considered owner-occupied under such a rule.

A property with multiple units can also be owner-occupied, as long as the owner lives in one of the units. If the owner plans to live in the property, the property will be classified as owner-occupied. The occupancy status of a property is determined at the time the owner registers the house or applies for a mortgage. This classification can also apply to multi-family rental properties. The term is commonly used for single-family homes and condominiums that are owned but rented to tenants. Generally, the classification is only used in residential real estate.

Non-owner-occupied is a property classification in real estate for properties that are not occupied by their owners. Updated FebruWhat Does Non-Owner-Occupied Mean?

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