Understanding Second Home Occupancy Requirements

Understanding second home occupancy requirements is necessary for your next investment. Check out a full guide on second home occupancy requirements here!

Understanding Second Home Occupancy Requirements
Second Home Occupancy Rules

Occupancy rules dictate how the property will be used after you have bought it. It can be classified as a primary residence, second home, or an investment property. There are some second home occupancy requirements that impact how you use your second home though.

Let’s check out what common second home occupancy rules are.

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What Is a Primary Residence?

Your house is your major or primary property. It serves as your primary residence, place of business, and permanent address. Lenders may refer to it as your primary house or owner-occupied property.

Lenders view owner-occupied properties as less risky. Compared to loans for vacation and investment homes, loans for main residences have lower interest rates and down payments.

What Is a Second Home?

In essence, a second home is a property you own in alongside your primary house. A second house can have several uses, even if your primary residence is probably where you spend most of your time.

A second house, in contrast to your primary residence, is a property that you may use for a variety of purposes, such as a vacation destination, a separate residence, or even a source of extra income.

Acceptable Second Home Occupancy Requirements

There is no end to the purposes a second house can fulfill, but in general, they can be divided into three main uses. Let's learn about them now.

1. Holiday Residences

Perhaps the most common reason for purchasing a second house is to escape the daily grind. A vacation house is a haven, a place to unwind and relax, whether it's a cottage in the mountains, a condo by the beach, or a lodge in the woods.

2. Secondary Home

A second house can sometimes be used for more useful purposes. It may be a house close to your place of employment, which would cut down on your daily drive and act as a home away from home throughout the workweek. On the other hand, it may be near relatives or where you intend to retire someday.

3. Properties for Investment

A second house might be a source of income. You may make extra money by leasing it out, either for a long-term agreement or as a short-term vacation rental. Just keep in mind that, in comparison to other types of second houses, investment properties may have distinct borrowing requirements and tax consequences.

What Are Second Home Mortgages?

A second home mortgage is a loan intended to help finance a secondary or vacation house.

Given the unusual risk profile it provides to lenders, it is different from loans utilized for personal residences or investment properties. This is mostly because you don't live in your second house on a daily basis. This situation gives lenders the impression that you would put other payments ahead of your second house mortgage if you run into financial troubles.

The property must meet certain requirements in order to be eligible for a second home mortgage:

  • It must be a single-unit residence that is suitable for year-round use, even if you only intend to occupy it seasonally
  • It must be free and clear of any long-term leases or timeshare agreements
  • It must not be managed by a property management company
  • It must typically be a certain distance from your primary residence.

One intriguing feature of second home mortgages is that you may be able to rent out the property when it's not in use. However, rental periods are usually limited to 180 days yearly, and the potential rental income cannot be taken into account when determining your mortgage qualification requirements.

Why Is Occupancy Status Important?

Lenders are interested in knowing how you plan to utilize your property to decide your loan. For a main property, mortgage loans are typically easier to qualify for and come with lower interest rates. Since buyers would be incentivized to continue making payments for their roof over their heads, lenders see these loans as less risky.

Second houses are an entirely other matter. Since lenders consider these homes to be investments, they have more stringent qualifying standards along with higher borrowing rates.

When applying for a mortgage, it's important to be truthful about your intended use of the house since lying about your occupancy status might have serious repercussions: If you are found guilty of bank fraud charges, your lender may demand the whole amount of your loan at once, and you may also be subject to further fines and maybe jail time.

Can Second Homes Be Rented Out?

For second houses, short-term rental arrangements such as those offered by Airbnb are quite appropriate.

You must be allowed to utilize your second residence for personal purposes for at least half of the year. You are not allowed to rent out your vacation house to a third party, operate it as a timeshare, or sign a long-term contract with a renter.

For two reasons, it may be harder to get accepted for a second house mortgage than it is to get one for your primary home or an investment property.

  • Lenders compute your debt-to-income ratio (DTI) by adding up the costs for both your primary and secondary homes.
  • Short-term rental revenue from your second house is not taken into account by lenders. Unlike when you have a mortgage on an investment property, you cannot utilize the future rental income to pay off debt.

Why Do Second-Home Mortgage Rates Have Higher Rates?

Due to the greater risk considerations attached to second houses and investment properties, mortgage rates are usually higher for these types of properties than for primary residences.

Lenders face greater risk when making vacation and rental property loans because of the higher default rates on second homes.

Lenders are aware that in the event of financial difficulty, you will prioritize paying off the mortgage on your primary residence and are less likely to overlook payments on your secondary residence.

To offset this added risk, lenders impose higher interest rates on mortgages for second homes and investment properties.

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Can A Secondary Property Be Used as A Primary Residence?

If you satisfy all of the conditions for principal residence, you may be able to modify the occupancy status of a property. An elderly couple who opted to simplify their lives by selling their primary property and relocating to their second home may serve as a prime example of this. The kind of occupancy does affect the details of your finances, so before making any changes, it's crucial to speak with your mortgage lender.

What Would Happen If You Sold the First or Second Home?

Second houses are considered investments by the IRS. You may be required to pay long-term capital gains of up to 20% of the property's worth if you haven't changed your occupancy status by living in your second home for a significant amount of time prior to the sale. You may be able to exclude capital gains when you sell your principal house. If you're filing jointly with your spouse, you should be eligible to deduct up to $500,000 from taxes. Check with your accountant to make sure.


The second home occupancy requirements dictate how you can use your second home. It can impact your lender’s proposal and mortgages. So, make sure to check with your accountant or investment expert before using your second home as a residence.