Loan-to-Value Ratio

• One of the first things a loan representative will tell you is the loan-to-value ratio (LTV) is lower on non-owner occupied mortgages. Since the owner does not live in the property, he does not have complete control over the premises. Because the tenants can damage or neglect the property, it is a higher risk. Most banks lend only 70 to 75 percent of the value of a non-owner occupied home, as opposed to 80 percent for an owner occupied property. The bank will order an appraisal, but you can get one prior to application to get an idea of the value. A standard property appraisal for a residence runs between $200 and $500.
  
  

Interest Rates

• Because investment properties are a higher risk, the interest rate is often higher. On residential properties, the rate is usually one-quarter to one-half of a percentage point higher than the owner-occupied rate. For commercial properties, the rate gap will be similar, but it can be negotiated based on extenuating factors such as a low LTV or strong deposit relationship.
  
  

Supporting Information

• To get a mortgage, you will provide the lender with financial information, including bank statements, pay stubs, W2s and tax returns. For a non-owner occupied property, you will need to show the lender proof of any income it generates. You will provide the lender with copies of any lease agreements as well as "Schedule E" from your federal tax return. The bank will use the lease to calculate your net operating income, which will factor into the decision to approve or deny the mortgage
  
  

Documentation

• The documentation on a non-owner occupied mortgage is similar to the owner-occupied version in most respects. The most important aspect of a non-owner occupied mortgage is that the owner must sign it. The tenant has no rights to the property, other than the right to occupy it. He cannot obtain financing on the property in any way. The owner can take the mortgage without the occupant's consent or knowledge.