Intention to rent Investment Property. Second Home loan status?

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Intention to rent Investment Property. Second Home loan status?

Stan C.
New York, NY · Member since 2018 · 100 posts · 20 votes

I want to apply for a conventional loan on a duplex out of state. Both units are currently rented and I intend to keep renting them. A mortgage broker said one of his underwriters may approve a loan as "second home" with 10% down (versus traditional 20% for an investment property loans). Is that a violation of any laws/codes to have a "second home" loan on a property that is actually an investment property?  What are the chances of running into troubles down the road? What are the downsides of doing so?   Can tax deductions be exactly same for both scenarios?  

I won't be under an LLC. Insurance would be for "investment property". It would be managed by a PM company.

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Aaron K.
Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
8y

I think that the lender is the one responsible for that, as long as they are aware that it is an investment it should be fine.  My guess is that they looked at your current income and decided that you didn't need the rental income from the duplex to qualify for the loan and had a better product.

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  • Aaron K.
    Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
    8y

    I think that the lender is the one responsible for that, as long as they are aware that it is an investment it should be fine.  My guess is that they looked at your current income and decided that you didn't need the rental income from the duplex to qualify for the loan and had a better product.

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  • Stan C.
    OP
    New York, NY · Member since 2018 · 100 posts · 20 votes
    8y

    Thank you Aaron Klatt. Does anybody else have am opinion maybe? What about tge IRS and taxes implications?

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  • Natalie Novak
    Seattle, WA · Member since 2013 · 8 posts · 5 votes
    8y

    I’d also be interested in this answer. Lender is telling me the interest rate as a second home is 4.75% , but on an investment property it would be 5.75.

    1Reply
  • Melvin ListBusiness Member
    Lender · Tampa, FL · Member since 2016 · 1k+ posts · 381 votes
    8y

    @Stan C. mortgage fraud.

    C2 Financial
    WebsiteView Page
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  • Stan C.
    OP
    New York, NY · Member since 2018 · 100 posts · 20 votes
    8y

    @Melvin List, are you certain of that. Even if underwriter says "OK"? 

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  • Melvin ListBusiness Member
    Lender · Tampa, FL · Member since 2016 · 1k+ posts · 381 votes
    8y

    @Stan C. yes. If your intentions are to keep it rented then it is an investment property not a second home. 

    C2 Financial
    WebsiteView Page
    1Reply
  • Stan C.
    OP
    New York, NY · Member since 2018 · 100 posts · 20 votes
    8y

    Well, on the same note but different subject. An insurance broker offered me a HO3 policy on a non-owner occupied out of state duplex. I can't find any confirmations online that HO3 is allowed in place of DP3. Everything I read says non-owner occupied properties must be insured with DP3.  Both the morgtage broker and the insurance brokerage represent big companies and are reputable. How is that possible to get such questionable suggestions from reputable professionals???  

    Or, is the HO3 allowed on non-owner occupied?

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  • Derek Lacy
    Insurance Agent · Maitland, FL · Member since 2015 · 397 posts · 244 votes
    8y
    Correct. HO3 is ineligible for non-owner occupied. DP3 is for rentals or owner-occupied.
    1Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    8y
    Originally posted by @Stan C.:

    I want to apply for a conventional loan on a duplex out of state. Both units are currently rented and I intend to keep renting them. A mortgage broker said one of his underwriters may approve a loan as "second home" with 10% down (versus traditional 20% for an investment property loans). Is that a violation of any laws/codes to have a "second home" loan on a property that is actually an investment property?  What are the chances of running into troubles down the road? What are the downsides of doing so?   Can tax deductions be exactly same for both scenarios?  

    I won't be under an LLC. Insurance would be for "investment property". It would be managed by a PM company.

     Congratulate the MLO on getting his license, and offer him a towel for the slight wetness behind his ears. :)

    Basically I tell folks no 12 month leases, and you've got to go there to vacation/party once a year, but you can rent it out to other families partying/vacationing if you wish the rest of the year. This isn't at all a new concept (think of old movies where WASPs "summer in the Hamptons"), airbnb just made it a website. 

    1Reply
  • Stan C.
    OP
    New York, NY · Member since 2018 · 100 posts · 20 votes
    8y
    Originally posted by @Chris Mason:
    Originally posted by @Stan C.:

    I want to apply for a conventional loan on a duplex out of state. Both units are currently rented and I intend to keep renting them. A mortgage broker said one of his underwriters may approve a loan as "second home" with 10% down (versus traditional 20% for an investment property loans). Is that a violation of any laws/codes to have a "second home" loan on a property that is actually an investment property?  What are the chances of running into troubles down the road? What are the downsides of doing so?   Can tax deductions be exactly same for both scenarios?  

    I won't be under an LLC. Insurance would be for "investment property". It would be managed by a PM company.

     Congratulate the MLO on getting his license, and offer him a towel for the slight wetness behind his ears. :)

    Basically I tell folks no 12 month leases, and you've got to go there to vacation/party once a year, but you can rent it out to other families partying/vacationing if you wish the rest of the year. This isn't at all a new concept (think of old movies where WASPs "summer in the Hamptons"), airbnb just made it a website. 

    I see. Thanks, Chris. Well, there will be a management company, it's a duplex, leases will be 1 year. A no-go. I'm doing 25% down although it's very hard for me financially.  

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