A real estate sale has to close -- and the mortgage has to be finalized -- before the buyer can move into her new home. As a result, the lender must rely on the borrower's promise that she'll actually live in the house she's buying. Some lenders provide a form for the borrower to sign, but others require a letter, which should be drafted to conform to specific guidelines. A letter of intent to occupy a home is a legal commitment.
Owner-occupied homes qualify for better mortgage terms and interest rates than investment properties. This is why, if you're a homebuyer promising to occupy the home you're borrowing money for, the lender requires you to promise you won't immediately turn it into a rental property.
In addition to requiring a letter of intent, banks apply other standards when considering whether a property will be owner-occupied. Among these are:
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- The property's proximity to the borrower's workplace.
- Its suitability for the borrower and his or her family's needs.
Lenders routinely investigate to verify owner occupancy, and may take steps to cancel the mortgage if they find that the home is occupied by someone other than the borrower. In addition, knowingly furnishing false information on a loan application, such as falsely declaring the intention to occupy a property, constitutes mortgage fraud, a federal crime.
Writing the Letter
If your loan officer has given you guidance on how to craft your letter, follow that closely. Otherwise, format it as a business letter. Date it the day you draft it, and address it to your mortgage lender, specifically noting the name of the loan officer you're working with. Be as brief as you can, providing only the information requested.
In a subject line, identify the property you're purchasing and the loan or case number assigned by the mortgage lender. For example:
RE: one-family home at 123 Oak Ave., Anywhere, IA 12345; BigBank Case #A34896
The letter's content can be a single paragraph in which you identify yourself by name, assert that you're applying for a mortgage to purchase the property, and declare your intent to occupy the property as your primary residence. For instance, "My name is Harry Smith. I've applied to BigBank for a mortgage to purchase the above-mentioned property. I intend to occupy the home as my primary residence."
Sign the and date the letter.
Occasionally, a home will qualify as owner-occupied even if the owner isn't personally in residence. For example, the borrower may purchase the home as the primary residence for elderly parents or disabled children. In such circumstances, carefully review the situation with your mortgage lender before drafting your letter of intent to occupy, and be certain it accurately reflects the situation.