Is it possible to get a second home mortgage that still allows for rentals a portion of the year?

Asked by godeep55, Duck, NC Sat May 12, 2012

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Hugh "Scoote…, Agent, Kill Devil Hills, NC
Sat May 12, 2012
As a Realtor located in the resort area of the Outer Banks, I often encounter Buyers interested in obtaining financing for a home that they will NOT be living in 100% of the time. They want the best rate, which is "owner occupied". Since, I do know a decent amount about tax and have owned both a second home and a rental property I thought that I would respond to your question. Nevertheless, please note that I'm neither a CPA nor a loan officer and what follows is neither accounting nor legal advice. As others may have advised, you should probably consult with both.

It's crucial to know the difference in your lenders eyes and to be completely upfront so you avoid committing fraud. Bottom line, the property and situation needs to make sense to the underwriter. Here are some basic definitions:

Principal/Primary Residence. When a property is classified as "owner occupied" it receives a better interest rate than an investment property. It's very straight forward:
• The owner lives in the property for a majority of the year.
• The property is in a location that make sense in relation to their employment and contains characteristics that suits the needs of their immediate family.
• The borrower acknowledges (on several loan documents) they intend to occupy the property. Note: "intend" does not mean, "oops...I financed this believing I would live here and now I've decided to buy another property nearby that I'll occupy". Typically the lender wants the buyer to occupy the property within 30 days of closing.

Second Home. A second or vacation home must be a reasonable distance away from a principal residence. Typically lenders like to see a minimum of 50 miles for distance from the borrowers’ home. The owner must occupy the property for some portion of the year and the property must be suitable for year round occupancy. Second home definitions can vary from lender to lender. Some will insist that a second home be in a resort area. It's generally a little tougher to qualify for a second home--borrowers are often qualifying with mortgage payments on two properties: their primary and the proposed second mortgage.

Investment Property. This is a property that the borrower does not occupy. It can also be a "second home" or vacation home that is too close to a primary residence or that the underwriter does feel strong enough that it is indeed a vacation home. As there is a higher risk to banks with investment properties, the interest rate reflects the risk (the higher the loan-to-value, the higher the rate).

Please note: Lenders will/may do post closing investigations to make sure that borrowers are actually residing in the property. If they find that the borrower is not, they may call the Note (mortgage) due...and that may be just the beginning of that person's troubles. Mortgage fraud is a very serious issue and falsely stating that one intends to occupy a property tops the list. Knowingly providing false information on a loan application is a federal crime.

In defense of most borrowers, sometimes it may seem unclear as to what type of occupancy a property qualifies for. Borrowers simply need to be upfront with their Loan Originator with the use and intentions of the property to make sure they do not commit mortgage fraud, even if it is not intentional.

I have a prepared Outer Banks Buyers’ Guide which I distribute to all my potential buyers, which I can send to you via email, if you would like? It can definitely help to facilitate the buying process for an Outer Banks home/condo and it has a list of some preferred local lenders who would definitely be more than willing to answer your more specific/personal questions about financing a home/condo in the Outer Banks.

Hugh “Scooter” Willey
Sun Realty
Ph: 252-489-8491
1 vote
Andrew Hawba…, Agent, Kitty Hawk, NC
Sat May 12, 2012
The easy answer is yes it is possible. There are things to consider when purchasing a second home, but it can be done. We handle everything at Beach Realty from purchase to renting your unit. So whether you are just beginning your search or have been looking for a long time we can help you find that perfect home that matches your criteria. Contact me today and lets find it together!
0 votes
Diane McCarr…, , Duck, NC
Sat May 12, 2012
Absolutely! Our local lenders are used to working with buyers such as your self. In fact, they will pre-qualify you by phone or email which I strongly advise. That way you will know how much home you can afford before you start your property search. I work with several reputable lenders regularly and I will be glad to give you their contact information if you'd like.

Diane McCarron
0 votes
Earl Keiser, Agent, Southern Shores, NC
Sat May 12, 2012
These mortgages are readily available and at terrific interest rates. More than half of the homeowners in Dare County are currently living outside the State, while they enjoy owning properties where they can vacation and also derive rental income from the wekks they are not here. Locally, we have experts in real estate sales, property management and home financing ready to assist you to find and then acquire and manage your new property. Lots of help is always available as we understand remote ownership issues.

I'd be very happy to answer any questions you may have and help you get started finding that pefect vaction property !!

Email or call anytime: / / 252-599-0533
0 votes
Ilona Mattes…, Agent, Duck, NC
Sat May 12, 2012
The majority of homes we sell in the area are purchased with a second home loan, yet still continue to be rented on the vacation rental market. There are a few things to consider when doing this such as the tax setup and deductions for the home, regular use requirements and the costs associated with renting. Using a local lender definitely helps facilitate the process. I am happy to provide you with additional information. Contact me with your questions.

Ilona Matteson
0 votes
Chuck Motosko, Agent, Southern Shores, NC
Sat May 12, 2012
Hello! Yes mortgages are readily available that permit rentals. There are few different types of loans. If you woulsd like to contact me I can provides you with additional details and/or connect you with a mortgage broker who can explain everything in detail. Chuck Motosko

Charles S. Motosko

252-256-1715 - 800-730-7031
1184 Duck Rd, Duck, NC, 27949
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