We are considering buying a second (vacation) home. A cabin in the mountains, about 150 miles from where we live. It’s much cheaper to get a second home mortgage than an investment property mortgage, but we would ideally like to get some rental income from the property as well. It probably wouldn’t be a lot, definitely not enough to pay the mortgage. I’ve gotten a lot of hemming and hawing from the mortgage specialists I’ve spoken with about whether we’d qualify for a second home mortgage. Is there a specific line lenders use to separate a second home from an investment property? Any rental income at all? Or is there a threshold amount, or a threshold number of days, or percentage of owner occupancy? We’re going to be 100% honest with the lender, but we’d like to know in advance if we need to commit ourselves to a certain limitation on rental use.
Thanks!
I appreciate the answers, but they don’t quite get to the heart of my question, so let me rephrase it.
The home would primarily be for our personal vacation use. But – since we care about not committing mortgage fraud and want to be sure we’re on the right side of the law – we need to know if ANY amount of rental income is too much for that type of loan.
What we have in mind is letting people rent it on weekends we’re not using it. It would never be occupied by a tenant for more than a few days at a time. No long-term lease. It’s in a ski area and I imagine we could find renters for some of the weekends we don’t use it during the winter months.
We would probably stay there several whole weeks during the year, and numerous more weekends, and would probably be the ones to occupy the cabin more than 50% of the time it’s occupied.
Would that situation qualify for a second home mortgage? Or would any rental income at all mean we’d need an investment mortgage?
Age of Reason
March 18, 2010 at 3:35 pm
If you intend to rent for a week you technically to not qualify for a home mortgage.
limbo
March 18, 2010 at 4:07 pm
Well you’re right you want to be honest with the lender as they will do their homework before they end up lending you 100’s of thousands of dollars. Now a 2nd/Vacation home is a home that is 50 miles away from your primary residence. That home cannot be occupied by anyone but you from time to time. If you rent it out or have family living living in there then it becomes a Non-Owner Occupied Home (Investment). In the mortgage industry we don’t actually use the verbage of Investment property its a Non-Owner Occupied home. 2nd/Vacation homes will come with better rates and less restrictive loan to value ratios. Non-Owner Occ properties are difficult as they require more down payment and they come with higher rates. I would a put a mortgage on the other property instead of putting a 2nd mortgage on your primary bc the chances are better in getting the other property financed than getting a 2nd mortgage since they are very difficult with the lack of equity in the market right now in a depreciating housing market. Good Luck
skr
March 18, 2010 at 4:27 pm
If it’s 150 miles away it should not be an issue to call it a 2nd home. There is no “mortgage police” that will check occupancy. People change their minds about occupancy as circumstances change. Suppose you wanted to rent out your current home, would you now go back to the bank to tell them you want to refinance so you can get a higher rate and you can make it an investment, you wouldn’t. I would think if the rental monies you did collect, since you mentioned it would not cover the mortgage is only covering utilities. This hardy makes this an investment property, I bet you won’t even write it off of your taxes.