We have an applicant that wants to purchase land with a house next to his homestead. He will allow his daughter to live there rent free. Would the proper occupancy code be 2 for 2nd residence or 3 for investment property?

If the applicant won't live there at all, it's investment.

For purposes of § 1003.4(a)(6), a property is a second residence of an applicant or borrower if the property is or will be occupied by the applicant or borrower for a portion of the year and is not the applicant's or borrower's principal residence.

What about Primarily Business/Commercial Purpose?

We have a similar scenario where they are purchasing a 1-unit dwelling which their daughter will occupy rent free while away at college. Once graduated the borrower will lease the property.

Either way, it should be coded as investment if the borrower will not occupy the property, either primarily or secondarily.

Yes, that's what I have it coded as currently.

Then, Yes Primarily for Business/Commercial is what I have that coded as well. I just wasn't sure if this fell under a commercial purpose since there is a relation between the borrower and occupant & no income is being generated from the property.

A loan to purchase a home so that they can let their daughter live in it free isn't a business purpose loan in my eyes, no.

However, i don't think the family relationship is a factor....if the daughter was paying rent i would be ok with a business purpose designation and if someone unrelated to the borrowers was living there rent-free, i'd still call it consumer purpose.

FWIW I agree with ratichjay.

What they intend to do with the property after the daughter graduates is not a factor for the purpose of the current loan. They are currently purchasing the property for a personal, family, or household purpose. Therefore it is a consumer purpose loan.