Why do They Want to Know my Purpose in Buying a Home?
I’m assuming when you say that you mean your purpose as in whether it will be owner-occupied i.e. you would actually physically live in the house yourself, or you would be renting it out to someone else. And not the purpose almost everyone else has in buying a home: building long-term wealth. Okay, sorry - haven’t had my first cup of coffee just yet and it’s not funny when I try to be funny before it. My apologies.
The lender wants to know your purpose (and usually Realtors do as well) because they want to decide how much of an interest rate to charge on your mortgage. Your interest rate is inversely proportional to the amount of risk you are as a borrower. If you have a great credit score, have a down payment and are buying the home to live in, you are considered a lower risk than someone who has no down, a bad score and wants to rent the place out. The thinking is that if times get tough on you financially, you will pay for the roof on your head first and let your investments go the way of foreclosure.
Typically, investors are charged between 1/8 to a 1/4 percentage higher on their mortgage rates than owner-occupied homes. They are also required to have a higher down payment - typically 25% today.
