Primary Residence - What is the legal definition?

Question

I'm learning about mortgage options for my first investment property. This is also my first home purchase, so the FHA loans and other owner-occupancy options are on the table. I currently live rent-free as a caretaker just 15 miles away from the duplex I'd like to purchase. I don't necessarily want to move.

My question is what is the legal definition of "primary residence"? Could I rent out both sides of the duplex but still call it my primary residence by changing my address to that of one side of the duplex? Could I rent one side 100% and the other 50% (6-month lease or short-term AirBNB perhaps) such that it is my primary residence?

From what I have researched, I may have more loan options if it is a primary residence. However, I do want this to be a long-term investment property. Thus, I wonder if starting an LLC and getting a traditional 20% down loan may be the best long-term option for this property while providing me the flexibility to NOT live on the property.

Any other creative ideas for conventional financing out there? (I am only beginning to learn about private lending currently).

Thank you all!

Jason D. · Answer

@Susan Elliott the definition is whatever the mortgage company decides it is. You will sign an affidavit stating that you plan on moving into the property within 60 days and live there for one year. You're free to tell them your plans to see if that qualifies.

This is not a case where it's better to ask forgiveness than ask permission....

Kyle J. · Answer

When defining your primary residence, the IRS would look at facts and circumstances such as:

- where you spend the most time

- where you get your mail

- where you’re registered to vote

- the address on your tax returns

- the address on your drivers license and vehicle registration

Clearly if you rent out both sides of a duplex, it’s not your primary residence. Even if you change your mailing address to one side of the duplex.

Susan Elliott · Answer

@Chris Mason Thanks for including the exact clause here. This is what I expected and am happy to have support for this. Thanks for your time!

Susan Elliott · Answer

@Kyle J. Yes, thank you for that very clear list. This is what I suspected. I'm happy to have so many confirmations of that so I can move on to other strategies. Thank you.

@Bill Brandt I will be sure to look for that page in the documents and discuss this specifically with our lender. I also saw that google definition and am happy to have some folks generally confirm it here. I have no intention of trying to break any laws. I'll just need to search for other financing strategies!

@Jason D. Got it. Thank you for the confirmation of that!

Chris Mason · Answer

The promise you will make at the closing table can be found here. In California the Fannie Mae contract is used for all loan types - VA, FHA, etc. I would assume that is the case in all 50 states but can't be certain of that. In the CA one, it's paragraph 6:

6.  Occupancy.  Borrower shall occupy, establish, and use the 	Property as Borrower’s principal residence within 60 days after 	the execution of this Security Instrument and shall continue to  	occupy  the  Property  as  Borrower’s  principal  residence  for  	at  least  one  year  after  the  date.

Bill B. · Answer

I believe most mortgage documents include a page that specifically asks and basically only says. ‘I plan to live there” that’s why you’re getting a better rate and lower costs. It might even have a list of the penalties and crimes being committed by not doing that. If it doesn’t your mortgage broker can defiantly tell you.

Google says...

Lenders can call the loan — demanding immediate, full payment of the outstanding mortgage balance. If the borrowers can’t afford to or refuse to pay, the lender typically moves to foreclose — wrecking whatever plans of long-term investment or vacation-rental-home ownership the borrowers might have had. Lenders can also refer the case to the FBI: Lies on mortgage applications are bank fraud and can trigger severe financial penalties, prosecution and prison time if convicted.

Primary Residence - What is the legal definition?

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