Mortgage benefits for a primary residence
Your primary residence is usually the place where you spend most of the calendar year. It can be an apartment, single-family home, townhouse, multi-unit house or any other type of property you inhabit most of the time.
When you say your property will be your primary residence, lenders smile. Why? Because they can usually offer great interest rates and loan terms for a home you’ll actually nest in. Some loans offered by Citi like FHA loans and VA loans may only be used for a primary residence.
Here are some highlights of primary residence mortgages:
- Better interest rates: Lenders generally offer lower interest rates for primary residence mortgages because they’re considered lower risk compared to investment properties.
- Friendly loan terms: Because homeowners are less likely to let their payments slip on their primary residence compared to an investment property, lenders often provide more favorable loan terms.
- Tax benefits: You may be able to save on your federal income taxes by deducting mortgage interest and property taxes for your primary residence. Of course, always consult your tax advisor for help with your situation.
- Qualification: Lenders often have more lenient criteria for primary residences, compared to investment properties.
- Lower down payments: You can step into homeownership with less upfront cash, thanks to flexible loan options that are made for primary residences. FHA loans, which start at just 3.5% down, are a good example of this.
- Homestead relief: In many states, you can enjoy reduced property taxes through homestead exemptions that cut costs for primary residences.
Nice benefits to be sure, but here’s just a note of caution: Falsely claiming a property as your primary residence can lead to penalties, higher interest rates or even legal action. Always be honest with your lender about your living situation.
What qualifies as your primary residence?
Only one property can be your primary residence at any given time. For a property to qualify as your primary residence, you usually have to live there for most of the year. For most people, this is a place that’s close to your job, family, friends, recreational clubs, religious organizations, daily activities and even your bank. If you’re a remote worker (and your employer confirms it) job distance might not come into play.
Calling your place a "primary residence" takes more than just saying so. It's a detailed framework (overseen by the IRS) that ensures your home is truly your main living space.
Here’s a list of the basic guidelines governing primary residency:
- You live there most of the time.
- You should move into the property by a certain date, typically within 60 days of closing.
- You’ll probably have to live in the home for at least a year after closing.
- The home should be close to your job, unless you work remotely.
- For married couples, both partners usually have to declare the same property as their primary residence. If you’re getting a VA loan and are on active duty, your spouse can fulfill the occupancy requirement on your behalf.
If you convert the property into a rental or investment property within 12 months of closing, it must be classified as an investment property—not your primary residence. There may be exceptions to this rule, like if your job required you to move more than 50 miles from your home, if there are major family changes in your household or if you paid for the property in cash, without a lender’s help.
These guidelines still apply if the property is owned by an LLC or a revocable living trust, as long as it’s the primary residence of a member or grantor.
Beyond these basics, primary residence rules may also vary by state, so be sure to ask your financial advisor or accountant for recommendations. For example, Arizona defines a primary residence as a property used by the owner or leased to a qualified relative as their main home.
How long can you be away from your primary residence?
So, what about temporary absences? How long can they be? It may be okay to stray if plans keep you tied to your home. A stint in the hospital or a military deployment shouldn’t change your status, as long as you plan to return. This is also true if you’re away at school but returning for breaks, taking an extended vacation or doing a short-term work assignment away from home. If there’s ever a question, assessors will give you time to clarify your situation, so you have the chance to keep your residence status intact.
Proving that a property is your primary residence
You can show a property is your primary residence by sharing documents that reflect where you live day to day. Lenders and government agencies may ask for this to confirm you live in the home and meet occupancy requirements. Documents like your driver's license, voter registration, tax returns and recent utility bills help show that you live at a certain address for a majority of the year.
