Can a second home be a primary residence?

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Kayla Moses

Modern Farmhouse with backyard pool
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A primary residence (also known as a principal residence) is where an individual spends the majority of their time. Second homes are defined by how you use the home — you must occupy the property for a portion of the year, but it cannot be where you live day-to-day. There are key differences between the two occupancy types that lenders pay special attention to when you’re applying for financing.  

Understanding second homes vs. primary residences

Although you might visit a second home for weeks on end, it’s only a personal residence for part of the year. The rest of the time it may be vacant or rented out to others. By contrast, lenders expect your primary residence to take priority because it’s where you live and sleep. You can also own more than one “second” home; a second home is defined as a property that’s secondary to your primary residence.

Can a second home be a primary residence?

In short, no. A second home cannot be a primary residence because their qualifications are in direct conflict with each other. A primary home is where you spend the majority of your time, and a second home is where you spend a lesser portion of it.

Characteristics of each occupancy type

Primary residence
  • Owned and occupied at least 2 of the last 5 years
  • Where someone lives the majority of the year
  • The address listed on your driver’s license and tax documents
Secondary residence
  • Occupied for some portion of the year
  • Usually more than 50 miles from a primary residence 
  • Can be rented out for less than 180 days
Example: Alexis and her boyfriend own a house in Detroit, Michigan. Alexis purchases a condo in Florida to enjoy over the winter and holiday weekends. Although Alexis owns two properties, she spends more than 80% of her time in Detroit and uses this address for banking and legal documents. Her primary residence is in Michigan and her Florida condo is her second home. 

Takeaways

  • A primary residence is where you spend almost all of your time — your day-to-day home
  • A property cannot be a primary residence and a second home at the same time
  • Lenders refer to your occupancy status to determine your financing rates

In more detail:

Why does occupancy status matter?Lenders care about how you’ll use your property because they use that information to determine your financing. It’s easier to qualify for a mortgage loan on a primary residence and they usually have lower interest rates. Lenders view these loans as less risky — after all, wouldn’t buyers be motivated to continue paying for the roof over their head? Second homes are a different story. They have higher interest rates and tougher qualification requirements because lenders view these properties as investments. It’s critical to be honest about how you’ll be using your home when you apply for your mortgage because misrepresenting your occupancy status can have real consequences: Your lender can demand the full balance of your loan immediately, you’ll pay additional penalties, and you can even face prison time if convicted of bank fraud charges.Can a second home become a primary residence?It is possible to change a property’s occupancy status should you meet all the requirements of a primary residence. An example of this might be if a retired couple decided to downsize by selling their primary residence and moving into their second home. Occupancy type does determine specifics for your financing, so it’s important to reach out to your mortgage lender before making any changes. What happens if I decide to sell my primary residence or my second home?The IRS views second homes as investments. Unless you’ve lived in your second home for an extended period of time before the sale (to change occupancy status), you’ll pay long-term capital gains of up to 20% of the property’s value. Selling your primary residence allows capital gains exclusions. Check with your accountant, but you should be able to write off up to $500,000 on your tax return if you’re filing jointly with a spouse.Does the IRS view a Pacaso as a second home?Your Pacaso is a single-family residence that you own in part as a member of a property-specific LLC. Along with your co-owners, you gain a second home that meets the qualifications outlined earlier (some distance away from your primary residence, occupied for some of the year). Unlike most second homes, Pacaso homes are never rented out. You can rest easy knowing that when you’re not staying at your second home, it’s being well-managed. Can a Pacaso be a primary residence?Pacaso offers second home co-ownership. Owners are guaranteed to stay at least six weeks out of each calendar year, but no one owner can occupy a Pacaso full-time as a primary residence.

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