Primary residential mortgage
If you are looking for a mortgage, there are a number of different factors that might influence the mortgages available to you. One of the major factors considered is whether or not the property will be used as your primary residence, or owner occupied or if it will be a secondary residence, or investment property. But what does this mean in terms of interest rates and the different options available to you?
What is a primary residential mortgage?
A primary residential mortgage is designed specifically for buyers who intend to use the property as their primary residence, i.e. they will live in the property. If you intend to purchase the property for investment purposes or to use it as a second home, you will not be able to benefit from a primary residential home loan.
How do lenders define primary residences?
A primary residence is a property whereby you will spend most of your time and likely live. It can be easier to qualify for primary residence mortgages when compared with other occupancy types and so you can expect competitive mortgage rates.
The reason for this is because lenders may feel the risk is better than an investment property. Hence, the difference in rates generally. Homeowners might be more likely to stay on top of their payments when it can impact whether or not they have a roof over their head.
In order for the property to be deemed your primary residence, the following criteria needs to be met:
- You must live in the property for most of the year - depending on terms of the loan
- You must start living in the property within 60 days of closing - most of the times
- Your property should be situated within a reasonable distance from your place of employment
- If you refinance the mortgage for your primary premises, you need to show that you live at the property through documentation, for example, government identification or tax returns
What does primary residence mean for your mortgage?
When you make an application for your mortgage, the sort of home property you are financing, i.e. whether it is an investment property, second home, or primary home, is going to impact the mortgage rate you are able to secure. Mortgage rates tend to be lower for primary residences.
By securing a lower mortgage rate, it means that you will be able to save a considerable amount of money on interest payments over the lifespan of the loan. Therefore, if you are making an application for a mortgage for a primary residence, it is imperative that your mortgage lender is aware of this so that they can make you an offer that is appropriate for the type of property you are purchasing.
How can you convert a property to your primary residence?
Are you thinking about moving into a property that you initially purchased as a second home or for investment purposes? You may assume that you can simply move into your second home or investment property and call it a day. However, this may not be the case, of course consult with your CPA for further clarification on your specific situation as this is not tax advice nor is it legal advice.
As primary properties come with a number of tax advantages, the IRS is going to want to ensure that it gets a cut. Therefore, a lot of property owners will decide to complete a 1031 exchange if they decide they want to move into an investment property. With this, a rental property owner has the ability to buy another rental property with the money they have made from the sale of a prior rental. In basic terms, you are exchanging one rental for another.
By doing this, you may reduce the depreciation rapture taxes and capital gains taxes. Generally, to receive any gains exclusions, you must have owned the property for a minimum of five years and lived in it for a minimum of two years. If this is the case, you will be able to move into the property and begin the process of converting it into your primary residence. Of course consult your CPA and Attorney to get specific information regarding your specific situation, as this article does not apply to all and terms are subject to change.
Final words on securing a primary residence mortgage
So there you have it: a good start to what you need to know about primary residence mortgages. We hope that this has helped you to get a better understanding of what classifies as a primary residence, and what this means for your mortgage.
Understanding Property Classification
Primary Mortgage Market
Exchange Property into a Principal Residence