Primary Residence

We are often asked about occupancy on a property and intended use. To give a fuller understanding, this blog posting will be broken into three parts, the first on primary, then second home, and finally investment properties.

To start this series off, here are a few definitions:

Primary Residence – A residential property intended for use as a borrower’s primary residence. It is not intended to be used as a secondary residence or an investment property.

Second Home – A residential property that is to be used exclusively as the borrower’s second home. These are usually in vacation or resort areas; however, it may be in a more traditional residential area if the borrower is intending to use as a second home due to work considerations.

Investment Property – Residential property that is used as an investment vehicle for rental income.

While these definitions seem clear, often the question is asked of how long does a borrower have to occupy a primary residence before they can rent it. The key is on the Deed of Trust that the borrower signs at the closing. It states that the borrower intends to occupy the property as their primary residence for a minimum of 12 months past the date of the signing of the note. The key word in the phrase is “intends”.

An example of this would be if a borrower purchased a home and then six months later the borrower received a job transfer that he/she did not know was coming. In this case, the borrower intended to occupy the property but due to a situation beyond their control, they are having to move. If they convert the property to rental property, there is not a problem.

However, if a borrower purchased a primary residence with the idea they are moving in six months, then the borrower has no intention of living in the property for at least 12 months and this would be considered misrepresentation. Misrepresentation can lead to foreclosure or even civil or criminal prosecution. Not something to be played with!

Finally, there are situations where the transaction is a primary residence, when the borrowers do not live in the house at all.  

This is acceptable as a primary residence. This can be done for parents or adult children who may have developmental disabilities. In neither case do the borrowers occupy the home, but it is a primary residency.

For more information on scenarios regarding primary occupancy, contact one of our Loan Officers at Googain.