Are we in default on our mortgage if we make our second home our primary residence sooner than expected?

Asked by Pat Carroll, Belmont, CA Mon May 20, 2013

My husband I bought a second home with the intention of eventually retiring there. We signed a rider saying we were purchasing the property as a second home. A few weeks after close of escrow, my husband was diagnosed with cancer so he retiring sooner than expected. We plan to make the second home our primary residence. Will we be in default if we occupy the home as our primary residence? How do we get the rider removed?

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James Wehner, Agent, Scottsdale, AZ
Tue May 21, 2013
I'm very sorry to hear about your husband's health issue. The best thing you could do is disclose this to your loan servicer. The purpose of the rider was to protect against fraud in the event you were trying to purchase the home as a rental property and reduce the amount of down payment required as well as a lower interest rate.

Don't lose any sleep over it, call them and explain the circumstances.

Best wishes to your husband!

James Wehner
West USA Realy
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Patty Fisch, Agent, Gilbert, AZ
Mon May 20, 2013
I am very sorry to hear about your husband - I hope you both get to enjoy his early retirement and your new home.

First and second home loans are for when you plan to occupy the home (not rent it out) and are financed at a lower rate than an investment home. You should not have an issue, you can call your lender to confirm. You may also call your insurance to reflect your occupancy intentions,
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Jennie Miller…, Agent, Phoenix, AZ
Mon May 20, 2013
You will want to call your mortgage servicer and ask them.
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Howard Rudin, Agent, Scottsdale, AZ
Mon May 20, 2013
The main thing they were wanting to make sure of that it was not going to be a rental. There is really no issue if you move into it sooner. You may have paid a higher rate on your mortgage and it may be worth a refi if you have a large balance. You will also want to let your insurance agent know that you are moving there and probably adjust your personal property limits so that you are covered. I hope this helps.

Howard Rudin
TOP 1% Selling Agent
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BParker, CPA*, , Scottsdale, AZ
Mon May 20, 2013
Hi Me:

I replied to your question on the other site, and the answer is "No". You will be using it for a purpose which is LESS risky to your lender than you originally intended, so you are fine. If you were going the other way (primary to second or investment/rental) then you might have an issue.

In response to Brad's comment "you are likely being charged a higher interest rate for the 2nd home"--I do not believe that is the case. The interest rates are pretty much the same for primary and second homes; the differences usually come in the form of having to put more money down, not being able to borrower as much money on a cash-out; requiring higher credit scores, etc., vs. higher interest rates.

Good luck. Sorry to hear about your husband's diagnosis...
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Thank you so much for your kind words. RE: our loan, we took a 7/1 ARM @2.75%, which we thought was pretty good.
Flag Mon May 20, 2013
Brad Bergami…, Agent, Prescott, AZ
Mon May 20, 2013
No.. you might wish to contact your loan persons and insurance persons to declare that you are moving in. You also might check your interest rate you are likely being charged a higher rate for the 2nd home.
Good luck,
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