Occupancy Checks - What Are They and Why?

    I remember the turmoil and state of panic like it was yesterday, even though it happened during my first month in the business in 1994.

    A lender that funded one of our brokered loans did an “occupancy check” about a month after our loan closed and discovered that the borrower had lied about occupancy.

    The lender actually knocked on the door of the subject property and discovered that the borrower did NOT move into the property like he had promised in his loan documents, and the lender called the loan due.

    The borrower lied to both us and the lender because he wanted to garner much more favorable owner-occupied financing, but his lie put him at risk of losing his home altogether.

    He ended up having to scrape up a larger down payment and then obtain inferior investor financing to take out (or pay off) his owner-occupied financing – so he survived, but not without a lot of pain and stress.

    Occupancy Checks or “Occ Knocks” Are Real

    Many borrowers are all too cavalier about the risk of occupancy checks because they mistakenly believe that once a loan closes, they are home-free.

    But, if there are any reasons for a lender to believe that a borrower was not telling the truth about occupancy, the lender will hire someone to do an occupancy check.

    Here are some of the things that might make a lender suspicious:

    1. Mailing address is different than home address.
    2. A history of frequently buying and selling homes, as indicated by the credit report or county records.
    3. The ownership of larger or nicer homes in nearby areas.
    4. The presence of tenants, at the time of purchase, in a property that seems more suited for an investor than an owner-occupant.

    Occ Knocks for Investors Too

    Investors are at risk of occupancy checks too when they buy a home as an investor in order to use rental income to help qualify.

    If a borrower can only qualify for a purchase by taking advantage of future rental income, that too will make lenders suspicious.

    If an investor says he will rent out the property in order to qualify for financing, he needs to actually rent out the property.

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    Jay Voorhees
    Founder/Broker | JVM Lending
    (855) 855-4491 | DRE# 1197176, NMLS# 310167

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