Second home purchase. Child will live there.

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Second home purchase. Child will live there.

Can I buy a second home and allow a child to live in it? I
may be there a few weeks a year. I will not charge rent.
Mortgage company is telling me it has to be a rental home.
I’ve paid off my first home. Excellent credit and substantial
down payment.

Asked on January 14, 2017 under Real Estate Law, Texas

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

Legally, you of course can buy a second home and let a child live it, whether or not it has a mortgage--that's the general rule.
However:
1) A mortgage is a contract, so if you already have a mortgage for this home, you have to obey any terms or clauses in the mortgage; so if the mortgage agreement(s) indicate this was an investment or rental property, you have to comply with those terms--otherwise, you are in breach of contract.
2) Similarly, if you got the mortgage by representing (that is, applying for it on the basis) that it would be an income or rental property, and now you are not going to rent it out, you may have committed fraud by applying for the mortgage under false pretenses--and could potentially be sued for that. And/or the application for the mortgage may be made part of or incorporated into the mortgage itself, in which case you will be held to what you said and could face legal consequences if you go back on it.
So the law lets you let anyone live in a home you want rent free. But since mortgages are contracts, you may be limited by the terms of the mortgage or what you said in applying for it. On the other hand, if neither the application nor the mortgage obligates you to rent the home out or use it as an income property, you are free to do what you want--the bank can *ask* you to charge rent, but they would not be able to back that request up legally without something in the mortgage or application supporting it.
If you don't yet have a mortgage but are applying for one, remember that banks don't have to loan to you; making loans is voluntary. So the lender can say they will not lend unless you rent out the home.


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