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QUESTION Are there two different definitions for a second

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QUESTION: Are there two...
QUESTION: Are there two different definitions for a second home? Does IRS and the banking industry (US Treasury, HUD, etc.) have different definitions for a seond home?

Information about my situation:
I have a second home per IRS laws and publications, but not per the banking industry.
Per the banks definition of a second home (when trying to refinancing the loan) it has to be defined as a investment property and therefor, they offer only a higher mortgage rate.
My second home is not an investment property. It is not rented out. I do not need rental incomde to meet the mortgage. I have family, that I support, living in the home. The banks say because the home is near my primary residence and so it can not be considered a second home.

Thank you so much for your assistance.
Submitted: 6 years ago.Category: Real Estate Law
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9/18/2011
Real Estate Lawyer: Law Pro, Lawyer replied 6 years ago
Law Pro
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The bank can define a "second" home any way they like.

If you don't like their definition or interest rate you're entitled to shop-around for a better loan rate, etc.

Although the bank is subject to the IRS and their rules and regulations - they can incorporate their own rules and regulations as to lending that are not opposed or contrary to the IRS rules and regulations.

However you want to define the "2nd" home - it's not your "primary" residence.

It's the lender's choice in the matter though as to "their" definition under the facts and circumstances and what "risk" they are willing to take in the matter.


Principal/Primary Residence. When a property is classified as "owner occupied" it receives a better interest rate than an investment property. It's very straight forward:

  • The owner lives in the property for a majority of the year.
  • The property is in a location that make sense in relation to their employment and contains characteristics that suits the needs of their immediate family.
  • The borrower acknowledges (on several loan documents) they intend to occupy the property. Note: "intend" does not mean, "oops...I financed this believing I would live here and now I've decided to buy another property near by that I'll occupy". Typically the lender wants the buyer to occupy the property within 30 days of closing.

Second Home. A second or vacation home must be a reasonable distance away from a principal residence. Typically lenders like to see a minimum of 50 miles for distance from the borrowers home. The owner must occupy the property for some portion of the year and the property must be suitable for year round occupancy. Second home definitions can vary from lender to lender. Some will insist that a second home be in a resort area. It's generally a little tougher to qualify for a second home--borrowers are often qualifying with mortgage payments on two properties: their primary and the proposed second mortgage.

 

Investment Property. This is a property that the borrower does not occupy. It can also be a "second home" or vacation home that is too close to a primary residence or that the underwriter does feel strong enough that it is indeed a vacation home. As there is a higher risk to banks with investment properties, the interest rate reflects the risk (the higher the loan-to-value, the higher the rate).
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