This data point will not change much when reporting your HMDA data in 2018. A financial institution must report whether the property will be used by the applicant as a principal residence, a secondary residence, or as an investment property.
Principal residences are fairly straightforward. This is an applicant’s primary home and they can only have one principal residence at a time. The dwelling does not necessarily have to be built at the time of the application in order for it to be considered the borrower’s primary residence. If they intend to build a new dwelling that will become their principal residence within one year or when it is completed, then this would be considered as their principal residence.
A property is reported as a second residence when it will be occupied by the borrower for only a portion of the year and it is not considered by the borrower as being their primary residence. Second homes can include properties that the borrower rents out for a portion of the year and houses that are only lived in during the week due to its proximity to their workplace.
An investment property for HMDA purposes is a dwelling that the borrower does not occupy at any time. It can be rented out by the borrower in order to generate income but that is not the only way for it to be considered an investment property. When a property is not lived in by the borrower and is not rented to others for income, it is still considered to be an investment property if it is the borrowers intention to make money by selling the property itself. When the property is owned by a corporation but it is used by their employees as long-term residences, then this would be considered as an investment property for the corporation. There is one distinction however when it comes to corporate owned properties. If the property is purely for the transitory use by their employees, then it would not be considered as a dwelling and would not be HMDA reportable.
For more information on HMDA regulations, 2018 data point changes or our HMDA compliance services, please call Rhonda Wannemuehler or Betsy Reynolds at 855-734-7655.