Higher Risk

• Banks and mortgage companies consider loans on investment properties, or property that the owner rents out for income, to be a higher risk of default than a loan on an owner-occupied property. Banks believe that a property owner is more likely to default on a home that he is not living in than on his primary residence. If a person purchases a property specifically as a rental or investment, he can expect higher interest rates and higher down payment requirements.
  
  

First-Time Homebuyer's Mortgages

• Most states and some localities offer mortgages to encourage people who have never owned a home to become homeowners. These mortgages offer lower interest rates and are subsidized by housing authorities that sell tax-free bonds to fund these low rates. Some of the interest rates and loans may be partially funded by taxpayers. The purpose of these mortgages is to encourage home ownership, not to help fund investors with low-interest loans. These mortgages often do not allow a homeowner to rent out a single-family home.
  
  

Owner-Occupied Rentals

• Lenders may be more receptive to owner-occupied rentals, including those in first-time homebuyer's programs. These loans have lower risk than investment property loans; since the homeowner is living in the home, he is less likely to default. Mortgages on owner-occupied rentals may stipulate that the owner must live in one of the units for a certain amount of time before he rents out the unit he is living in, to allow him to build more equity before he converts the house to an investment property.
  
  

If You Must Move

• If a homeowner purchases a home and his circumstances change, requiring him to move out of the area, he should check his mortgage contract to be certain that he is not restricted from renting out his home before doing so. If the mortgage contract states that he cannot rent the home, he may have to sell the property instead. If he is unable to sell the property for a sufficient amount to clear the mortgage, he can ask the mortgage company for permission to rent due to the extreme circumstances. Most mortgage companies will be willing to work with a homeowner, as they do not want to foreclose on a home.