Second home?

[outs222]

Hi,

My fiancee and I have purchased a home for my elderly parent and siblings.  We plan to live in the property for a year.  Afterwards we will get married and move out but my family will continue to occupy the home and pay the mortgage.  We plan on buying another home but are unsure of our options. Do I have to make the current property an investment property through my lender, or can the new home my fiancee and I purchase be considered a 2nd home?  It will be roughly 70 miles away from the current property (NY) as there is a certain area we're interested in (NJ).  How would this affect us tax wise?  Any info would be greatly appreciated, as this is all new to us.

Thanks.

[Anonymous_ · Accepted solution]

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@outs222 wrote:

Do I have to make the current property an investment property through my lender, or can the new home my fiancee and I purchase be considered a 2nd home? 

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Your lender, in all likelihood, required you to sign the standard Fannie Mae/Freddie Mac single-family mortgage instrument which requires you to occupy the home within 60 days after signing and use the home as your principal residence for at least one year thereafter. Since you are planning to comply with those requirements, there is nothing more you need to do with respect to your lender; you can use the property as you desire following that one-year period (or at least any use that does not impair the lender's security interest).

With respect to the IRS, the home would most likely be considered a second home (with your deductions limited to property taxes and mortgage interest as itemized deductions, subject to limitations) since you are allowing immediate family members to occupy the premises.

[Anonymous]

your fiancee and you will be on the mortgage for the first home even if you move out.  Can't say if the mortgage  will release you without a refi.  this means you're on the hook if they fail to pay.   Being obligated, might affect the ability to get a mortgage of the second home or result in a higher interest rate.   this is just a warning but it has happened.     you also own the first home.    if something happens,  there will be no step-up in basis so you can avoid gain on sale.    perhaps , it would be advisable to consult a lawyer for estate planning regarding your elderly parents.