Primary Residence Or Principal Residence: Mortgage Lender Problems

Q: I bought a house as a primary residence in 2006. In 2007, I bought another home that I intended to use as my primary residence.

I had intended to sell the first home but the market softened so much I decided to wait. I ended up renting the house and plan to sell it once the market improves.

I was recently informed by my lender that their current lending guidelines require my first home be owner-occupied. I tried to appeal but they didn’t budge.

I did some research and found commentary that said owner-occupancy is usually required for just the first year. So I reviewed my loan document and found that owner-occupancy is indeed required for just the first year.

I’d like to know if the clause from my loan document is sufficient. Even if their current guidelines dictate owner-occupancy for all loans, will satisfying the terms of the loan I signed override their current requirements?

A: Yes. The documents you signed govern your relationship with your lender. That said, the lender may question the truthfulness of your loan application and the statements you made to the lender.

When you first applied for your loan, you probably told the lender that you intended on using the home as your primary residence. At the closing of the purchase of the home and when you signed that large stack of documents at settlement, you once again stated to the lender that you intended to move into the home and use the home as your primary residence for at least one year.

In some cases, some lenders have the borrower – that would have been you – sign multiple documents that essentially say the same thing: you will live in the home as your principal residence and that the lender has given you the loan on the basis of your representation that you plan to use the home as your primary residence.

You probably found language in your mortgage or trust deed that states as follows: “Borrower shall occupy, establish, and use the Property as Borrower’s principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower’s principal residence for at least one year after the date of occupancy, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exist which are beyond Borrower’s control.”

From the lender’s perspective, it’s suspicious that you purchased your first home and then purchased a subsequent primary residence about a year later. It raises the question as to whether you truly intended on purchasing the home as your primary residence and whether you maintained the home as your primary residence for that first full year.

If you moved into the first home and lived there as your primary residence and then decided to buy another home and move, you should be fine. But if you purchased the first home, moved in and shortly after moving in decided to buy the second home, the lender may feel that you did not abide by the terms of the loan and did not really intend to use the first property as your primary residence. but rather to buy and flip the home.

So while you may be getting inconsistent information from the lender, it’s probable that the lender’s guidelines have remained the same and the issue is that you purchased two homes in a relatively short period of time.

By the way, most lenders rarely find out that a borrower isn’t using a home as a primary residence. Did your lender audit your file and discovered that you were no longer living at the home?

Finally, if you complied with the terms of the original loan documents, the lender can’t later retroactively apply new loan conditions to your home purchase. For more details on your lender problem, please speak to a real estate attorney.

If you have a nightmare situation going on with your lender, please add your comment below. All of your comments can help us and our readers get a better understanding of the problems borrowers are facing today. We also want to keep our readers posted on these lender problems.


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5 Responses to Primary Residence Or Principal Residence: Mortgage Lender Problems

  1. Karin McFarland says:

    We work for the US Government in jobs that require living overseas for stretches of time (two to three years) (civilian, not military). We own a house in the US which we call “home.”

    Currently we are overseas but one of our dependent children lives in the house as well as our pets, and all our personal belongings are there. We are not renting the place and this is the only property we own (in the US or overseas). We are registered to vote with that address, pay utilities, etc. We run the house as if we were there. It is our home base for us and our other children who go to colleges close to the house (between 1 and 3 hours away).

    We want to refinance the house but the underwriter says that the property is an investment property. How can that be and can we refute that?

    I hope you can help us with your advice since we feel this doesn’t make sense and has big money repercussions in therms of mortgage rates, taxes and future loans for remodeling.

  2. Lou says:

    I have been renting a condo in which we live part of the year in one state (Michigan) over the last 4 years, we have a home in California that we own it has never been rented I want to refinance the home in California. We visit the home in California often throughout the year for extended stays, I am a registered voter in California and have a current drivers license there along with bills addressed to that location.
    I noticed in our closing documents they (lender) indicated that this was a second home? What are the advantages or disadvantages as a primary or secondary home, I still get the benefits tax deductions etc.. Why won’t the lender make this my primary address, I rent the property in Michigan on a month to month bases and will eventually return to California permanently in the near future.
    If this cannot be done can I request the home to be my primary residence when I move back or does it stay as a second permanently.

  3. LL says:

    About 7 years ago I bought a house as my primary residence and have been living there ever since. I have refinanced it several years ago and I started to look for another house about 2 years ago. Do to various reasons, it was very difficult to find one that both my wife and I agreed upon and when we actually did find a house that we agreed on, we were overbid for it so we gave up trying and decided to stay where we are at and just refinance about 7 months ago (we started the process) and the refi came through in June. Then, of course, several months later a home came to our attention that fit our criteria. We went to look at it and it was perfect. All was great until our application was turned down because we wanted to buy another home and it was under a year since we last refinanced, other than that, we totally qualify for the loan. I have talked to several lenders, and they all say that it’s no problem. So, after explaining the situation to another lender what had happened regarding the “primary residence” clause (we even thought that since we went back to the company that gave us the loan, that they were unable to do it because it was their refinance to begin with), they 2nd lender also said it was no problem and we got again all the way up to the appraiser coming out and it was again haulted. Then we were told just to tell the situation and it would be waived as we were not trying to defraud on the loan. So we did all of that including all documents and a timeline to prove that we were not trying to defraud on the loan. After they had us write all that up, they still said no. We asked why we had to write all that up if they weren’t going to approve it but they had no answer. After doing some calling around, they suggested to go back to the company who holds the loan now. We did and we talked to two different people there. One said they have never done a waiver before and have never done this before (although it says in the contract that consent cannot be unreasonably be withheld”). Now the other person in the same company knowing what the other person said still says that he has talked to the proper people and that it is not a problem because of our intent when we refinanced. It is like no one knows how this is handled. What I would like to know if anyone has come up against this…their situation changed within a year and they bought a home…were you successful and if you were, how did you get them to agree on the load or if you were turned down and why and did you persue it. We have another friend that is building a house and his loan is suspose to go through about three months short of his year from refinancing and we are concerned about him. He had no idea that there might be a problem until we told him of our situation. Can anyone help me here and give me some sound advise hopefully from their experience? Time is running out on our contract on this new house.

  4. LC says:

    LL, we are in the same boat as you. Had to take it up to all chains at B of A and after months of fighting, their legal department said they will not write us a letter. So the other lender won’t give us a loan. Very frustrating they are hiding in the Deed of Trust language when in the very same sentance it says they can waive the one year period if they agree in writing.

  5. Ginny walker says:

    I have kind of the same situation. I was a single woman and I bought a house using a hud loan because it was the only way I could afford a house or get a loan. I bought the house lived there over a year and a half. I got married . We lived in both houses part time . We decided to sell my house but with the market it is hard to keep both houses running full time and I change my address. My lender got word my address change but I didn’t physical change my address with them Now they sent me a mean letter stating that my mortaged property has to be my primary residence and will remain my principal residence for the life of my loan if not the will enforce it. Can they do that I don’t think so.

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