It matters who lives there

Family A bought a big house last year to accommodate a family member who needed to live with them. Over the course of several months, it became clear the arrangement was not ideal, and the extra family member moved out. Now the house is too big, and Family A wants to buy a smaller house.

This is a real-life scenario, and Family A qualifies to get a new loan. The hitch is, in order to "buy down" right now, their next house will be classified as an investment property – so they need to put 20 percent down. Why? Because at their age, it doesn't make sense to down-size, so they must be buying a rental, according to mortgage psychology.

Occupancy fraud is still a problem in lending. Rental loans carry bigger down payments and a higher interest rate due to the historically higher instance of loan default on that occupancy category.

Our fix in Family A's case is to wait until they have owned their home for over a year and then fully document why they are moving to a smaller house without selling the big one first.

Family B owns a small home and wants to buy a bigger one for their growing family. The mom works out of town and rents a place near work during the week. The dad didn't want to be on the loan, for personal reasons. When we went to the application process we learned in this instance our bigger house would be deemed a "second home," since mom's primary residence is by her job. That's where she sleeps the majority of her time.

Our fix for Family B is either to make a bigger down payment for the second-home status, or to add dad to our transaction to get owner-occupied terms, since he is in town seven nights a week.

Family C wants to buy a house for their kids to live in. This isn't a second home, it's an investment property. Rental loan terms apply.

In each case, the buyers thought nothing was unusual about what they wanted to do. But they discovered there is more to it in today's mortgage market. Are you thinking about buying a house anytime soon? Be in touch with your chosen mortgage advisor as you make your plan, to be sure we can fit you into a loan plan that will work best.

Tammy Engel is your local Mortgage Advisor, and has been working for your best interest since 1990. Talk to Tammy at 661/822-7325 for your next purchase, refinance, or reverse mortgage. NMLS #235051 CaDre #01273839