Second Mortgage for Rental Property?

Question

So I'm looking to buy a house out of town and was hoping to use a second-home loan to get a lower than 20% down payment. We'd also like to rent it out with a property manager for the first year while it builds up equity, but it's in a city that my entire family lives in, so long-term we'd want to use it as our own second house.

Does anyone know if a second-home mortgage requires you to occupy the property a certain amount of time each year or if there's another way to get a property out of state without a 20% down payment? It's a single-family home I'm looking into.

John D. · Answer

To add a bit of color to @Chris Mason's comments, you could likely employ a property management company, so long as you had the right, and intent, on using some of the days yourself.  If a 3rd party could restrict you from using it yourself, technically that wouldn't fly.

Lucas Hammer · Answer

Thanks @Chris Mason! That actually sounds great to us because we'd want to keep availability for ourselves anyway.

Chris Mason · Answer

AirBnB is fine. As long as you are the one setting the schedule of availability, not a prop mgt company.

Lucas Hammer · Answer

@Chris Mason Thanks for the info. So would exclusive control eliminate AirBNB as an option too? I'll be getting a large bonus from work in a few months that'll put my LTV well below 80% and can refinance then into a standard conventional loan, but I'm trying to figure out if I can make some money to cover the mortgage until then.

Chris Mason · Answer

Hi Lucas,

No, that does not appear to check all the second home boxes. Think of east coast rich people on bad romcoms or made-for-tv Christmas movies that talk about "summering in the Hamptons" with sweaters wrapped around their necks wearing collared shirts with no buttons, sporting bad hair cuts. Those houses they are "summering" in are your typical "second home" type mortgages. In California, these are Lake Tahoe ski homes, SoCal it's Joshua Tree, that sort of thing. In my state, second home mortgages don't require bad haircuts and ugly sweaters, according to all the romcoms and made-for-tv Christmas films I've been forced to watch that is only an east coast requirement of the loan program.

You can do 15% down on an investment property SFR, but you will not like the rate/PMI/points combo.