Stuck between two mortgage lenders

[Matthew Saunders]

Hello everyone, 

So I've been trying to buy a vacation rental property for about the last 6 months. I found the property though a family friend that is located on a lake in upstate ny. I originally applied for a loan back in February 2019 with an interest rate lock at 4.75% and we were supposed to close in April 2019. During title search some tax liens showed upon the property and that ended up dragging out the closing and the seller took about 2 months to get the all clear form from the IRS. In that extra time interest rates dropped. I didn't think it was worth it to start with another lender until I got quoted at 3.75%! So the seller was willing to wait whileI pursued the lower rates. I asked my original lender about floating down and they told me that floating down is only an option on new builds, but other lenders have told me this is not true. The original lender also extend the rate lock through July 1st and then told me that in order to get a any new rate it would take 30 days past the rate lock expiration before they would give me any new rate. I think they're hoping to wear me down to closing with the higher rate. I did start a second application with a different lender with a 3.75% rate. This past Monday the second lender called and said that i would need to take out an investment loan instead and did not know what the interest rate for that would be, even though I told them up front what the property would be used for and they took my application fee happily. So now I'm waiting to hear from the second lender's underwriter about the loan type and the original lender is still being a stick in the mud about not floating their rate. I'm just frustrated and not sure how to deal with unhelpful lenders. Do i wait 30 days and hope they will give me a lower rate, take the higher rate and just close now, or hold out that the second lender makes good on their 3.75% locked rate? 

[Chris Mason]

Here's your problem right here:

Lender 1 took your words as meaning rental property (can "count" projected rents towards DTI, normal investor interest rate).

Lender 2 took your words as meaning vacation property (can NOT "count projected rents towards DTI, way better rate).

There is no category for "vacation rental" property. 3 categories:

• Primary residence.
• Second home aka vacation property.
• Investment aka rental property. 

Lender 1 likely identified upfront that rental income would need to be "counted," and in a more consultative fashion set your expectations accordingly. Lender 2 was just trying to be a rate vendor and throwing spaghetti at the wall, hoping something sticks. Lender 1 figured out upfront how it would need to go, Lender 2 just threw spaghetti, and the underwriter was about to deny the loan outright as it was submitted, then Lender 2 flipped it to a rental property to "save" a deal that should never have needed saving.