Anytime you apply for a mortgage, you must tell the lender if the home is going to be your primary residence, your second home or a vacation property. The status of the home is important because second homes and rental properties are a higher risk for the lender. Any home that you do not live in most of the time is more likely to result in a mortgage default.
Find out how the best mortgage lenders define primary residence in today’s home loan guidelines.
If you are financing a second home, usually the lender will charge a significantly higher mortgage rate for that home. Also note that most government backed mortgages do not allow you to finance second homes or rental properties. But what if you have two homes and you are living in each one about 50% of the time. Can you finance each one as your primary residence? Experts say this depends upon the circumstances. Banks and mortgage lenders will usually solve this issue by looking at the particulars of your case.
For example, the lender will look at how far apart your homes are, and whether your job creates a need to have two homes. Also, the lender will look at the size and location of your family to determine if you really need to have a second home as your primary residence.
There are some limited exceptions where government backed mortgage providers will consider allowing you to have a second primary residence:
- Relocation: It is possible to get a second FHA home mortgage on another primary residence without selling the old home. But you need to be relocating at least 100 miles, and the relocation has to be related to your job. For example, you might work from an office in your town and also work at the company headquarters in another part of the state. If you buy a home near the other office, you might be able to finance the new home as a primary home without selling the first one.
- Larger family: You also can be eligible for another primary residence if your family is too big for your current home, and you have a loan to value that is 75% or lower. This means you must have at least 25% equity in your current home. This can be helpful if you are moving other members of the family in to share the expenses or to take care of aging parents or relatives.
- Break-Ups: You might be allowed to have another primary residence mortgage if you are leaving the current home permanently, but the co borrower is continuing to live there.
- Co-Borrowing: If you are co borrower on another person’s primary residence but you do not live there, you can usually finance your own primary residence. But remember that being a co borrower will create contingent liability. This means you could be responsible for making the payment on that property if the co borrower does not meet their obligations.
If you want to buy a primary residence while you still have ownership of the other property, you will need to show the lender the transaction makes sense. If you are buying a new home in the same city, and you want to convert your old home to a rental property, you can help make your case to the lender by showing a rental agreement with your tenant.
It also is required to have at least 25% equity in your old home to count your new one as your primary residence. This requirement is still in effect from the old days when people who were underwater on their old house were buying new homes in the same city and walking away from their previous mortgage.
The bottom line it is possible in some cases to have two primary residences for mortgage purposes. Just make sure that you do not tell the mortgage company that one home is your primary residence and then fail to live there the required amount of time. Lenders have been known to do post-closing investigations to make sure you are actually living where you say you are. If they discover you are not living in the home, they can call the loan due. It also is mortgage fraud to tell the lender you are going to live somewhere and not actually live there.