Real Estate Professional · Glendora, CA · Member since 2016 · 203 posts · 17 votes
I am in the process of puchasing an investment property (for short term rentals). How do I underwrite the loan?
By the face of it, it's an investment property - where it is going to be rented out and expected to make money?
Also, being an vacation home, a lender suggested me that I can loan it as a 2nd or vacation home? It will be little less interest rate compare to investment/non-owner occupaid property.
I am in the process of puchasing an investment property (for short term rentals). How do I underwrite the loan?
By the face of it, it's an investment property - where it is going to be rented out and expected to make money?
Also, being an vacation home, a lender suggested me that I can loan it as a 2nd or vacation home? It will be little less interest rate compare to investment/non-owner occupaid property.
Anyone in this situation? Thoughts?
Here is the definition from Fannie Mae. 2nd Homes are actually the hardest to UW and your loan officer is way off on this one.
Second Home Properties
The table below provides the requirements for second home properties.
✓
Second Home Requirements
must be occupied by the borrower for some portion of the year
is restricted to one-unit dwellings
must be suitable for year-round occupancy
the borrower must have exclusive control over the property
must not be rental property or a timeshare arrangement
cannot be subject to any agreements that give a management firm control over the occupancy of the property
The lender will underwrite the loan for you. You need to tell them your current owner occupy location and where you plan to buy the 2nd home vacation spot. The lender will tell you if its a viable option.
So an example of your house not getting approved as a 2nd home. You live in Glendora CA and you want to buy a 2nd home in Huntington Beach CA. Probably not going to fly. Now if you live in Glendora CA and you want to buy a 2nd home in Lake Tahoe CA, Aspen CO, Hawaii. OK, now it makes sense. It needs to pass the Does this Make Sense Test.
I am in the process of puchasing an investment property (for short term rentals). How do I underwrite the loan?
By the face of it, it's an investment property - where it is going to be rented out and expected to make money?
Also, being an vacation home, a lender suggested me that I can loan it as a 2nd or vacation home? It will be little less interest rate compare to investment/non-owner occupaid property.
Anyone in this situation? Thoughts?
I'd follow the recommendations of the lender........Aces in their places.
I am in the process of puchasing an investment property (for short term rentals). How do I underwrite the loan?
By the face of it, it's an investment property - where it is going to be rented out and expected to make money?
Also, being an vacation home, a lender suggested me that I can loan it as a 2nd or vacation home? It will be little less interest rate compare to investment/non-owner occupaid property.
Anyone in this situation? Thoughts?
Here is the definition from Fannie Mae. 2nd Homes are actually the hardest to UW and your loan officer is way off on this one.
Second Home Properties
The table below provides the requirements for second home properties.
✓
Second Home Requirements
must be occupied by the borrower for some portion of the year
is restricted to one-unit dwellings
must be suitable for year-round occupancy
the borrower must have exclusive control over the property
must not be rental property or a timeshare arrangement
cannot be subject to any agreements that give a management firm control over the occupancy of the property
I understand the complexity of requirements in getting 2nd home under writing.
What happens if we can able to under write is for a 2nd home and I use it for a rental prpoerty - now and/or down the line.. how that is going to be treated?
Also, what would be the tax implications? Being an investment property, I believe I can account for all profit and loss statemetns but being an 2nd home, I don't think I will have that option. Thoughts?
@Pandu Chimata as mentioned above you can have your 2nd home rented as long as you occupy the property and not give up exclusive control over the property. Meaning, giving control to a property management company. It cannot be a timeshare. So if those requirements are met then you are inline with the requirements of the loan itself.
To answer your question about taxes most investors claim their rental properties on their "Schedule E" of their tax returns. If you have a real estate property that earns income for you then you MUST claim it....whether you are obeying the rules of a loan or not. I almost want you to think of "income" as an entirely separate thing than a loan. If you do make income and don't claim it, that's a big no-no. Please do consult a CPA on these things for better clarification. There's also a "Tax" form on Bigger Pockets too that might be able to go into this in more detail. Thanks!
Thanks for posting this. I've been looking for this information and couldn't find it anywhere (didn't think to look in Fannie). Every other post about this topic should just have this table as the response.