It is okay to use your calculated amounts as the Outstanding Mortgage Principal. However, you do not want to combine two loans for two different houses on the same form. You can use the interest rate method to determine the Outstanding Mortgage Principal for each Form 1098. Take the interest paid from box 1 and divide it by the lowest rate for each loan then report that amount as the Box 2 Outstanding Mortgage Principal.
You may also the monthly balance for each loan to provide the average for the year. For months where the loan did not exist, it would be 0. For example, if you acquired your new home in June, your balance would be $0 for January through May and approximately $780,000 for June through December for an average outstanding balance of $455,000.
If you use an outstanding mortgage balance different than what is reported, you do not have to worry because it is not the Form 1098 that is reported to the IRS, but rather the total deductible interest. However, you do want to keep the calculation to determine your average balance with your tax records so you can justify the number if needed.
