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Occupancy

The final adjustment for a rate quote has to do with occupancy. Do you intend to occupy the property as your primary residence?

Conventional Fixed-Price Adjustments Score vs. Loan to Value

Credit Score

< = 60%

>60-<=70%

>70-<=75%

>75-<=80%

>80-<=85%

>85-<=90%

>90-<=95%

>95-<=97%

> = 740

0.000

0.000

0.000

0.000

0.000

0.000

0.000

0.000

720 – 739

0.000

0.000

0.000

0.000

0.000

0.000

0.000

0.000

700 – 719

0.000

0.500

0.500

0.500

0.500

0.500

0.500

0.500

680 – 699

0.000

0.500

0.500

0.500

0.500

0.500

0.500

0.500

660 – 679, 640 -

0.000

0.500

1.250

1.250

1.250

1.250

1.250

n/a n/a

659, 620 – 639 <

0.000

0.500

1.750

1.750

1.750

1.750

1.750

n/a n/a

620

0.000

0.750

2.500

2.500

2.500

2.500

2.500

0.000

0.750

2.750

2.750

2.750

2.750

2.750

Cash Out Refinance Adjustments (in addition to adjustments above; does apply to 15-yr terms)

Credit Score

< = 60%

>60-<=70%

>70-<=75% >75-<=80% >80-<=85%

>85-<=90% >90-<=95% >95- <=97%

> = 740 720 -

0.000

0.000

0.000 0.250 0.375 0.125 0.375

0.375 n/a n/a 0.500 n/a n/a

739 700 – 719 680

0.000

0.125

0.000 0.125 0.375 0.500 0.250

0.500 n/a n/a 1.500 n/a n/a

- 699 660 – 679

0.000

0.125

0.750 1.500 0.250 0.750 1.500

1.500 n/a n/a 2.000 n/a n/a

640 – 659 620 -

0.000

0.250

0.750 1.500 2.000 0.750 1.500

2.000 n/a n/a 3.000 n/a n/a

639 < 620

0.000

0.250

2.000 1.750 2.500 3.000

0.000

0.750

0.000

0.750

1.000

1.750

Occupancy is one of the more important adjustments to rate that lenders make. If you don't intend to live in the property, the interest rate can be anywhere from 1/4 to 3/8 percent higher than if you do intend to live there.

Lenders evaluate several risk factors when issuing a mortgage. Someone renting the property out poses a greater risk of default than someone living there. After all, if someone owns a primary residence and a rental and loses his job, which property do you think would be more likely to go into foreclosure or be sold? That's right, the rental. Lenders adjust for that risk.

There is a third occupancy factor: a “second” or “vacation” home. A second home is simply another property where you live for part of the year. Think of someone who lives in Minnesota from the spring through the fall, then moves to Phoenix for the winter.

If you're buying a second home, the lender will determine whether the “vacation” home moniker would apply. Because vacation homes won't carry as high a rate premium as rentals, buyers may be tempted to lie on the loan application about the status of the property in question.

If you live in Minnesota and you're buying a unit in Phoenix, then a lender would be convinced it is in fact a second home. If you live in Minnesota and are buying in Minnesota, then you're going to have to make a pretty good case about the status of your potential purchase, especially so if your new unit is in the same town.

 
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