Commute’s Impact on Occupancy Concerns

Will the Property Be Occupied?

One critical factor that lenders and underwriters focus on when approving a mortgage is the intent for the property to be the borrower’s primary residence. This is especially important for programs like Fannie Mae, Freddie Mac, FHA, and VA loans, where specific guidelines are in place to ensure that the borrower will not only purchase but also occupy the home. So, what happens when a borrower is considering a home that is located far from their workplace, potentially making regular occupation less practical?

How Lenders Assess Occupancy

Lenders want to ensure that the borrower will live in the home they’re purchasing. In fact, most mortgage programs have rules that explicitly require the borrower to occupy the property as their primary residence for a set number of months after closing. This occupancy requirement is meant to reduce the risk for the lender and ensure that the buyer is invested in the property.

When it comes to long commutes, especially ones that involve significant time on the road, underwriters may question whether the buyer can live in the property as planned. For example, a two-hour commute each way could cause logistical challenges - mainly if it cuts into time spent at home. A potential concern is that the borrower may choose to spend most of their time closer to their workplace rather than commuting back to their new home.

Why This Matters to Underwriters

Underwriters must ensure that the borrower has the ability and the intention to occupy the property. If a commute is so lengthy that the borrower decides to stay closer to their work, it could be seen as a red flag regarding the borrower’s intent to comply with the occupancy requirement. In the case of your client, if his wife’s 2-hour drive to Ventura or 90-minute drive to Temecula becomes burdensome, she might decide to stay with family, rent closer to her workplace, or even consider an apartment near her job - further raising doubts about the property being used as a primary residence.

How Lenders and Agencies View This

• Fannie Mae and Freddie Mac: These agencies require borrowers to sign a statement that they intend to occupy the home as their primary residence for at least one year after closing. If the commute becomes excessively burdensome, the borrower could risk violating this requirement, especially if they spend more time living elsewhere. While Fannie Mae and Freddie Mac don’t specifically limit commute times, they look for evidence that the property will indeed be used as the primary residence.
• FHA: FHA also has strict occupancy requirements, typically requiring the borrower to occupy the property as their primary residence within 60 days of closing. The longer the commute, the more likely an underwriter might question whether the borrower will meet this occupancy requirement. If they don’t, the FHA may not approve the loan, or the borrower could face penalties later if they violate the terms.
• VA: The VA similarly expects the borrower to occupy the home as a primary residence within a certain time frame (usually within 60 days of closing). For active-duty military members, these occupancy rules can be more flexible, but long commutes or the practical difficulty of living in a far-flung area may lead the VA to question whether the borrower is truly meeting the intent to occupy the property.

Is the Borrower Really Going to Live There?

If the commute is long enough to cause discomfort or inconvenience, the lender may ask questions such as:

• Will the borrower stay in the home?: If commuting becomes too tiring or time-consuming, the borrower might choose to spend more time in a secondary location (closer to work) or even end up renting an apartment near the job, violating the primary residence rule.
• Will the borrower rent out the property?: Long commutes might lead the borrower to consider renting out the home or using it as a second home, which is typically not allowed under programs like FHA, VA, or conventional loans. The intent to occupy the property is key, and any change in this intent could jeopardize the loan approval.
• Will the commute negatively impact the borrower’s lifestyle?: A long, burdensome commute could lead to higher stress levels or health concerns, potentially affecting the borrower’s work-life balance and overall ability to maintain the loan. If an underwriter sees this, they might question whether this will impact the borrower’s ability to repay the loan over time.

Balancing Practicality and Intent

Ultimately, lenders want to make sure that the borrower’s decision to purchase a home isn’t just a financial one, but that it also makes sense from a practical standpoint. The idea behind these loan programs is to help borrowers secure a home where they can thrive financially and by creating a stable living situation.

Final Thoughts

When considering long commutes in the context of home purchasing, both lenders and borrowers need to evaluate whether the new home is truly feasible. Even if a borrower has the financial means to handle a long drive, it’s essential to demonstrate to lenders that the property will be the borrower’s primary residence. If commuting makes this onerous or unlikely, it could impact loan approval or require the borrower to rethink their choices.

If long commutes are unavoidable, it’s important to carefully assess the financial and lifestyle impact - and be prepared for a conversation with buyers about how that could affect the overall mortgage approval process.

Please let me know if you have any questions or if a client needs my guidance. I’m just a call, text, or email away.

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But wait, there’s more…

Interest Rates

Last week, we were at our best levels since October, and today, we are at our worst levels since January. The interest rate fluctuations are all due to the uncertainty of the markets, and we have massive volatility in the stock, bond, and mortgage-backed securities markets! Rates will stabilize someday, but I don’t know when that day will be!

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Please note that interest rates are subject to change without notice, and the information above reflects LA County Loan Limits.

**Good News for Condos:** – Nothing new!

**Bad News for Condos***

Annadale Condos– Agoura CA – Roof repairs are needed, but there is a lack of reserves and insurance issues!

The full state of California naughty list has been added to MikeMeena.com! See the link below:

https://mikemeena.com/non-warrantable-condos/

Please let me know if you hear anything new about condos or townhouses.

I am available every day if you need anything.

📞 Cell: 661-714-6258

TEXT: 661-714-6258

📞 Office: 661-260-2970 ext. 2222

📞 Direct Line: 661-291-2222

📧 Email: Mike@AugustaFinancial.com

Have a great day, and an even better tomorrow! Please call me when you have a client who needs to borrow!