Use second residence mortgage for rental property

[Joe B.]

I'm looking to buy a property in the Phoenix area to do short term rentals. The real estate broker said if I used a second residence mortgage instead of an investment I could put less money down and get a slightly better rate. Is there any way bank would find out that I'm renting it out full-time instead of when I'm not using it and even if they did would this cause them to take any action?

Thanks for any help

[Zach Wain]

@Joe B. - Correct, not really, and here is some advice

First, Vacation/second homes can put down as little as 10% down instead of a min 15% for rental properties when doing a conventional loan.  Less down - correct.  Better rate - nope.  Over a year ago, Conventional loans made the rates for vacation homes and rental homes the exact same.  Previous to that, yes, vacation homes had the same rates are primary homes!  It was great, until everyone took advantage of it.

Some advice on renting it out.  If you are doing a short term rental, you can get away with vacation home occupancy if you occupy the home for some portion of the year.  This is the actual guideline from FNMA "must be occupied by the borrower for some portion of the year".  What is some portion?  NO IDEA!  There is no actual day count.  So, go use your short term rental for personal/family use during the first year and then you are good to go.

Another advantage of second homes besides rates vs rentals.  You can get an appraisal waiver with 20% down.  That can help a ton with your negotiations.