Primary Residence Mortgage: Requirements, Benefits, Tax Treatment

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  • A primary residence is where you live most of the time.
  • It differs from a second home or investment property as you may not live there all the time.
  • The type of property matters when you take out a mortgage and file taxes.

Whether you are buying a home for the first time or for the fifth time, it can still be a daunting undertaking.

It is important to know what type of property you are looking to buy, whether it is a primary residence, a second home or an investment property. The difference between them matters for funding. If you’re planning to get a mortgage to buy your primary home, you need to know how you qualify.

How to qualify for a primary residence mortgage

As you browse different financing options for a primary residence, you may qualify for government-backed loans such as FHA, USDA, or VA mortgages. These types of home loans require very little or no money. In some cases there are low minimum income requirements.

“For most home buyers, buying a home as their primary residence offers the most favorable terms when it comes to the type of mortgage loan, the interest rate, the down payment required, the length of the loan, and eligibility” for the loan, says Jackie Boies, Senior Director of Partner Relations at Money Management International.

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“Lenders consider a primary residence to be the least risky place for them because a homebuyer is more likely to maintain (even improve) the home they live in and keep their mortgage payments up,” says Boies.

According to the IRS, a primary residence is:

  • Your primary residence or where you spend most of your time
  • Close to where you work, bank, go to school, attend leisure clubs, or participate in other community activities
  • Where other family members also have their main residence

Refinancing your primary residence mortgage may have different requirements. Since you already own the home, you’ll still need to provide proof of income, but having equity in the home could act as leverage, meaning your credit score may not have as much impact. But it depends on your lender, how long you own the home, and other factors that depend on the bank you refinance with.

Main residence vs. second home vs. investment property

“Your primary or primary residence is what you consider ‘home’ and where you live most of the time,” says Boies. “A second home is a place where you spend some time or perhaps consider your holiday home. An investment property is a property that you do not intend to live in and that you expect to rent, lease or exchange.”

Below are the major differences between these three types of traits:

Even if you split your time between your primary residence and secondary residence, you can only have one primary residence. This matters at some point because you can take advantage of the primary home loan tax benefits.

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“You may qualify for a mortgage interest deduction and a capital gains tax exemption on your gains if you sell your home in the future,” says Boies. “Income from an investment property is reportable and taxable. Proper reporting of income also allows you to offset income against expenses associated with the property.”

Advantages of a primary residence mortgage

A primary residence mortgage may be the simplest home loan you can qualify for. Here are some of the benefits.

Make a smaller deposit

Conventional and government-backed loans are much friendlier to primary residence borrowers than second home and investment property borrowers. You may not have to pay a deposit, or if you do, it can be a small amount – typically 3.5% to 5% of the purchase price.

For second homes and investment property, you may not qualify for a loan unless you put 20% aside. While a full 20% down payment can let you forgo private mortgage insurance (PMI), your primary need to have that cash on hand.

Qualify for a lower interest rate

Interest rates on mortgages for investment properties tend to be higher compared to primary residences. Lenders favor primary homeowners because they want more people to take out a home loan. Investment properties are not available to everyone, which means they are more exclusive.

The better your credit score, credit history, and debt-to-income ratio, the more likely you are to secure the lowest interest rate offered by a lender. If you own multiple indebted properties, you have a higher bar to show you can comfortably afford to make payments on a new loan. Because of this, you may not get the lowest interest rate on offer.

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Deduct mortgage interest from taxes

For primary residences, you can deduct the interest you paid on your home each year up to the first $750,000 of debt. In most cases, all of your mortgage interest is legitimate. Second homes are also an option.

Investment property does not typically qualify for this tax credit.

frequently asked Questions

A primary residence is where you spend most of your time. Maybe you have a second home that serves as a vacation home or that you visit regularly, but it’s not where you spend most of your time.

Your primary residence is where your voter registration and driver’s license are linked. This is where you spend most of your time and it is often linked to activities you participate in in the community, such as B. Religious groups and leisure clubs.

Even if you split your time evenly between two households, you only need to list one as your primary residence. There are no two primary residences when you take out a mortgage.

The final result

Your primary residence is where you live most of the time. Not everyone can afford a second home or an investment property. Banks tend to favor those reviewing primary residence mortgage options, which means the qualifying bar is often lower compared to other types of mortgages.


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