Lender answer:

I agree with Ericka's assessment below... you do not have to own a primary residence in order to qualify for a second home mortgage.

One sentence in your post, however, concerns me: "My sister whose house has foreclosed will be living there". This could pose a potential problem depending on how you intend to handle your sister's occupancy.

let's start with Fannie Mae's defintion of a second home:

"A second home is a property that is located within a reasonable distance from the borrower’s principal residence and which the borrower occupies for some portion of the year. We limit our purchase of mortgages that are secured by second homes to those properties that have one dwelling unit. The property must be suitable for year-round occupancy (and can, in fact, be occupied by someone other than the borrower—as long as the occupancy is not under a timeshare arrangement). The borrower must have exclusive control over the property; therefore, he or she must not enter into any rental agreements that require the property to be rented or give a management firm control over the occupancy of the property. When a property is classified as a second home, rental income may not be used to qualify the borrower. Conventional second mortgages may not be secured by a second home."

To satiafy the defintion, you may not enter into a rental agreement with your sister, and you must be able to occupy the home for some portion of the year. If you take a vacation in Atlanta once a year, and stay in your second home during that time, yet your sister lives there rent-free the rest of the year... you would meet the definition.

If you plan to enter into a rental agreement with your sister, then you are correct that you should designate the property as an investment.

Bear in mind that no matter what the mortgage sales rep says, you are the one declaring the occupancy class on the Uniform Residential Loan Application (FNMA Form 1003). If the lender later discovers that you have rented out the property, the lender would have the right to modify your loan or perhaps demand repayment.

Hildy,

That is correct! Purchase the home here as a secondary home instead of an investment.

Do you need some assistance locating a home here in the Atlanta area? HUD homes are a great opportunity to take advantage of in this market. You could assist your sister and make a great investment at the same time!

I would be glad to send you a list of HUD homes in your area of interest.

James Dudley
ERA Sunrise Realty
678-781-7418
james.dudley@era.com

I think what your loan officer is advising is that instead of an "investor loan" you can purchase the home as a "2nd home" which will provide a better interest rate than an "investor loan". Even though you do not own a home in NY, the smarter way to purchase here is to use the option as "2nd honme", which means this will be your 2nd place of residence. If you need further assistance, please feel free to contact me.

Ericka Nichols
Realtor
Remax Around Atlanta Allstars
404-219-4046 direct
770-460-3300 office

Hildy,
I believe what you lender is telling you is that you can apply for basically an equity line on your home and then buy the home in Atlanta with that. You would then be able to declare that interest as a tax deduction also.
It is a little harder to get an out of state investment loan.

Hope this helps,