What Is a Primary Residence?

Terry Masters

A primary residence is the principal place a person lives for the majority of the year or the permanent home he plans to return to upon conclusion of a temporary stay elsewhere. It can be a house or an apartment a person owns or a rental unit. The concept has a simple definition and various legal definitions when used as a requirement for certain programs or benefits. Most often, the qualification of a dwelling as a primary residence is important for acquiring mortgages, participating in government loan guaranty programs, and using certain tax deductions. The location of a primary residence is also important to establish state residency and to qualify for benefits.

An apartment can be a primary residence if the person in question lives there for a majority of the year.
An apartment can be a primary residence if the person in question lives there for a majority of the year.

Residential mortgages are one of the chief instances where a primary residence is legally defined. The classification of the property is typically a prerequisite to obtaining the loan. This is because the laws to recover property upon default are different if the property is a person's home as opposed to an income-generating or vacation property. Lenders also feel that borrowers are more likely to repay a mortgage on their principal residence, decreasing the risk and the accompanying interest rate to make the loan. The loan agreement often specifies that a mortgage is in default if the lender becomes aware that the borrower no longer uses the property in the specified way.

Many residential mortgages are guaranteed by government agencies that require the loan to be only for a primary residence. These programs exist to encourage home ownership and not to support the purchase of second homes or real estate investing. Certain government programs also provide loan down payment assistance to families. Programs that provide financial assistance also specify the number of years the family has to live in the house, otherwise they have to pay back the money.

The classification of a house also has tax consequences. National and local governments typically provide tax deductions on a principal home that a homeowner can take on his personal income taxes. This includes adjustments for property taxes, mortgage interest, energy efficiency improvements, and depreciation. Local property taxes often have certain exemptions available if the homeowner qualifies for a program and lives in a home for the majority of the year, such as a senior citizen discount for property taxes.

Another important use of the classification is to establish local residency. Localities tax people based upon whether they are considered permanent or temporary residents. Residency is also important to determine qualification for local benefits. For example, a student must have a primary residence in-state to qualify for reduced tuition at state colleges and universities in the US.

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