Applicant applied for loan to be used to purchase rental house. Will only be secured by the primary residence. Do I show the purpose as purchase and occupancy type as primary residence (which is the occupancy of the property being used as collateral) or do I report as investment?

But that property is not identified and the loan isn't secured by rental property. That is why the confusion. I would understand that reasoning if the loan was to be secured by a rental, however, it is not.

Occupancy is reported on the property you are taking as collateral.

Paragraph 4(a)(9)
1. Multiple properties with one property taken as security. If a covered loan is related to more than one property, but only one property is taken as security (or, in the case of an application, proposed to be taken as security), a financial institution reports the information required by § 1003.4(a)(9) for the property taken as or proposed to be taken as security. A financial institution does not report the information required by § 1003.4(a)(9) for the property or properties related to the loan that are not taken as or proposed to be taken as security. For example, if a covered loan is secured by property A, and the proceeds are used to purchase or rehabilitate (or to refinance home purchase or home improvement loans related to) property B, the institution reports the information required by § 1003.4(a)(9) for property A and does not report the information required by § 1003.4(a)(9) for property B.

(6) Whether the property identified in paragraph (a)(9) of this section is or will be used by the applicant or borrower as a principal residence, as a second residence, or as an investment property.

So, if you take 4(a)(6) and 4(a)(9) together, you end up with the requirement to report the occupancy of the property taken as security.