Residential properties are real estate constructed and used as homes and dwellings. Interestingly, the residential mortgage market has created a more limiting definition of acceptable residential properties. Standard residential loans deal with exclusively residential housing in the “conforming” sense. Conforming programs define residential properties as having 1-4 units, with all of the units zoned and occupied for residential usage. This definition obviously excludes apartment buildings with fve or more units, as well as mixed-use properties, such as three-flats with a store front or office on the first floor. These properies are treated like commercial properties.
The specific property type has a major impact on loan amounts, pricing, terms, loan-to-value (LTV) limits and program restrictions. With each mortgage application, loan officers, processors and underwriters must confirm that the requirements for the specific property type are satisfied. Loan underwriting will typically revolve around five possible issues:
- Occupancy. Owner-occupied, second home or non-owner-occupied.
- Number of units. Single-family, two-unit, three-unit or four-unit.
- Community structure. Condominiums, townhouses, cooperatives and PUDs.
- Condition. Structural, mechanical and functional stability.
- Zoning. Conforming or non-conforming. Urban, suburban or rural.