Rental Basics in 85250>Question Details

billscottsda…, Home Owner in New York, NY

Second Home Rider

Asked by billscottsdale, New York, NY Wed Mar 13, 2013

Hi, I bought a second home in Phoenix a few months ago.

I have been furnishing it gradually over time and plan to visit from time to time during vacations and other breaks.

My mortgage company had me sign a second home rider when I got the loan which basically says that the home is for me and my family only.

While I understand that this means I cant just go and rent the place year round, does it really mean that I cant have someone rent the home for a few months here and there on a furnished basis? Does anyone have practical experience on whether this is a real issue or am I just being silly?

Thanks

Bill

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Answers

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The best person to ask for clarification would be your loan officer. Many people buy second homes in preparation for future retirement and rent them out in the meantime. If you're concerned about your lender coming after you for language in the rider, it would be best to just make sure you don't default on the loan. If you pay your mortgage on time every month, your lender probably won't care what you do with the property.
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0 votes Thank Flag Link Wed Mar 13, 2013
Hi Bill:

The risk of non-payment goes up with an investment property vs. a primary or second home. Therefore, lenders assess additional fees at closing to compensate for this increased risk.

A couple of comments: First, it is a matter of the borrower's INTENT at the time of signing. No one can predict the future, so it is understood your intentions with the property may change over time. If you bought it as a primary or second home and immediately switched it to a rental, then the lender could make the case that fraud existed at time of signing because your obvious intent was to use it as a rental.

So, the more time that passes between signing the second home rider and when you first rent the home out, would be a key factor in any dispute. Most of these riders have a one year waiting period, but, as we say in the tax world, it would be a case of "all the facts and circumstances".

I hope this helps.
0 votes Thank Flag Link Wed Mar 13, 2013
Dear Bill:

Each lender has their own riders. No one in this open forum without reading the rider in question would be able to comment on any rental restrictions. The lender is looking for someone that will care for the house evidently. As you know, rental homes take more abuse, on average, than an owner lived in home.

Jeff
0 votes Thank Flag Link Wed Mar 13, 2013
Bill

The mortgage company wants you to be responsible first and foremost, make the payment every month, take care of the property etc. The documents up front are an attempt to prevent fraud, some true investors try and get a loan that states it is a 2nd home with no intention of living in the home.

Glad to answer any questions you might have.
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