What Are Second-Home Occupancy Requirements?
Second-home occupancy requirements are the rules that require you to occupy a second home for part of the year as your own residence, rather than renting it out full-time. Unlike a primary residence, a second home has no minimum consecutive-occupancy period, but Fannie Mae and Freddie Mac both require the borrower to occupy and control the property and prohibit timeshare or full-time rental arrangements.
Owner Occupancy
Fannie Mae, Freddie Mac, and FHA all require buyers to move into a financed property within 60 days of close of escrow to meet owner-occupancy requirements.
As a reminder, FHA offers only owner-occupied financing (FHA offers no investment property financing), and Fannie and Freddie of course offer much better terms for owner-occupants because the default risk is much lower.
| Rule | Fannie Mae | Freddie Mac | Days |
|---|---|---|---|
| Primary residence occupancy | Must move in and occupy as principal residence | Must move in and occupy as principal residence | Within 60 days of closing |
| Maximum seller rent-back (owner-occupied) | Allowed up to the 60-day occupancy deadline | Allowed up to the 60-day occupancy deadline | 60 days (JVM advises 59) |
| Second-home occupancy | Must occupy part of the year; no full-time rental or timeshare | Must occupy part of the year; no full-time rental or timeshare | No fixed day count |
Seller Rent-Backs for 60 Days
Sellers can rent back a property they just sold (and remain in the home) for up to 60 days after close of escrow. We often tell Realtors and Buyers, however, to limit the rent backs to 59 days to ensure that the new buyers are able to move into the property by day 60. We want to avoid a potential breach of the owner-occupancy rules and a potential delay in closing time by a persnickety underwriter.
Overlays and Exceptions
Some mortgage lenders have “overlays” that limit a rent-back to only 30 days, and many jumbo lenders have 30-day limits as part of their hard and fast rules. As a reminder, an “overlay” is an additional requirement or rule that lenders add on top of agency (Fannie and Freddie) or FHA guidelines.
We have no rent-back overlays at JVM of course, but if you are not using JVM for financing, God forbid 😊, seller rent-backs should be discussed with the lender before they are included in a purchase contract.
