Mortgage liability for renting a second home?

Question

I used a 2nd home mortgage to finance an out of state condo. I told my mortgage broker we intend to live there while our retirement house is built in 3 to 5 years, but we would be renting it until that time.

The mortgage was sold before closing. The day before closing the the underwriter freaked out because I had insured it as a rental, because it has current tenants, and the deal almost blew up. The mortgage broker never asked if it was occupied and I didn’t know that was important - lesson learned.

My question is: should I refi it as an investment?  The condo is going into a REPT, but I intend to pay the mortgage from my LLC. What bad things can happen if the mortgage holder gets upset with this arrangement?

On a personal note, largely because I was a professional pilot I am a rule follower. If there was something “shady” about the way I did this deal (I was under the impression this is common practice) I’d rather pay the $ to refi than have the mortgage holder foreclose.

Candid thoughts appreciated, thank you.

Bill B. · Answer

If it was always an investment loan and never a vacation home they can call it due. This would be much more likely and a bigger problem if you had received a primary home loan. That’s where most of the problems occur because you sign a piece of paper saying you plan to live there s your primary for at least a year.

You could certainly reach out to the lender and ask them if they are “all good” with you renting out your vacation home long term. Hopefully they replying in “writing” (like an email) saying they are. If they aren’t, start shopping for a new investment loan now before rates start climbing. I don’t know what you put down but you’ll pry need 25% as an investment property.