MortgageCurrentcy Subscriber Library

Reverification of Occupancy – Getting it Right – Fannie Mae

Description:

Occupancy type — why it matters: Because of the different levels of risk, there are different eligibility rules based on the occupancy type. Lower-risk transactions often allow for higher loan-to-value ratios and lower interest rates for the borrower. This cost differential could potentially incentivize borrowers to misrepresent an investment property as a primary residence so they can borrow more at a lower cost. Additionally, occupancy risk is one of the variables that mortgage investors, such as Fannie Mae, consider when pricing loans. For example, when a primary residence is discovered to be in fact an investment property, the higher risk profile can result in financial losses for the stakeholders. Reverse occupancy is a type of occupancy misrepresentation in which the borrower purchases a home as an investment property, claiming rental income to qualify for the mortgage. Instead of renting the home out, the borrower occupies it as a primary residence, thereby not receiving the rental income that was used to qualify for the mortgage.

Document type:

  • Chart/Checklist

Agency:

Fannie Mae

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