When it comes time to clarify your occupancy intentions for the property you are financing, you only have three choices: primary residence, second home or investment property.

However, you’d be surprised at how complicated this question is to answer for many home loan applicants because of the temptations surrounding the possibility of locking a lower rate or obtaining more favorable terms by picking one over the other.

For example, a primary residence classification gives you the most options.

The standard definition of a primary residence is a property that you’ll physically occupy as your principal residence within 60 days of closing. It’s a property you’d occupy for the major part of a year and that’s located conveniently to your main place of employment.

In addition, the address of this property should be used in your federal income tax reporting paperwork, voter registration, driver’s license and throughout any of your other personal identifiable documentation.

If you own and live in a multi-unit property, up to four units only, you can still claim this as your primary residence provided that you don’t own any other residential property of equal or greater value in the same area in which the units are located.

Plus, your mailing address and property address must match on all forms, including home insurance. Even the title policy report should reflect a homeowner’s exemption.

A second home is a single-family property that you occupy along with your primary residence. Typically, a second home is used as a vacation home.

It’s a property that should be remote from your primary residence in either distance or time of travel and be located in a resort or vacation area such as the mountains, oceanfront, wine country or desert. Second homes may also be located in a major metropolitan area that you visit on a regular basis.

But you may not own another second home or investment property in the same area. Your property insurance policy can’t contain any coverage for loss of rent nor can it be rented on an on-going basis.

If it is, any incidental income shouldn’t be in excess of 14 days for the entire year with no significant amount shown on your IRS Form Schedule E of the property either.

The home should be available for your exclusive use and enjoyment and not be subject to any timesharing arrangement or rental pools or agreements that require you to rent the property or give a management firm control over the occupancy.

Lastly, an investment property is a one- to four-unit dwelling that you simply do not occupy. Whether or not the property produces income does not matter. In summary, you should work with a mortgage professional who is willing to help you fully understand the meaning behind each of these occupancy classifications.

By doing so, it allows your lender to better structure your application and to steer you clear from one of the most common types of fraud still running around in the lending world.

Chris Salese can be reached at chris@delsurmortgage.com or (707) 363-4439. He is a licensed California mortgage banker (NMLS 254469/1850 CA BRE 01377933/01215943) and equal housing lender.


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