How do they know?

Question

I reached out to our finance guy and asked about 2nd home requirements. He said, "You can rent the home out but it must be less than 50% of the year." My question is, how does a lender know if I were to rent it for more than 50%? Just wondering.

Brett Deas · Answer

In short, they probably won't. It's just like using a primary as a rental, the odds of them ever coming around is so close to 0.

I would also ask about the 50% rental part, I have never ran into that problem with any of my clients. The only restriction we have to deal with is where you have to stay in it 2 weeks out of the year.

Bill B. · Answer

As long as you don’t list it with a STR website like Airbnb or VRBO or sign a long term lease you’ll probably be ok. But ask them how much you save compared to using how you actually intend to use it, it might not be worth the risk. This isn’t like a primary versus a rental, the savings might not exceed the extra income you could make by getting a regular rental loan. Don’t forget, it’s all deductible so it has to be a lot of savings.

Caroline Gerardo · Answer

If you change your insurance policy they will know, so those who said they will never know are wrong. If you start struggling making payments it's easy for a servicer to enter the address and find it on VRBO or Airbnb... and they may check.

A second home is generally in resort area, unless you can get an exception. Second home you cannot use rental income to qualify.

Brian Willard · Answer

I want to be perfectly clear, I have NO intention of obtaining a loan under fraudulent conditions. I don't think he was saying I had to live it for 50% of the year, but that I could only STR it for 50% of the year.

Ty Coutts · Answer

Hello @Brian Willard,

Great question, and to @Brett Deas's point.. they won't.

Technically the signed documents will be on record if you ever get audited for any reason and they can therefore prove that you acknowledged and agreed to those terms when taking on that financing. But the chances of this happening are very unlikely.

Obviously if you start buying 3, 4 or 5 "second homes" then underwriter's are going to start looking into this with a fine tooth comb and most likely find out if you have a history of getting rental income from these properties.

That being said, I am helping a client get his 3rd "second home" right now in Arkansas. One is a lakehouse near his primary where he likes to hunt, one is in a different state by his daughter who is off in college, and one is an underground home built into a burm so that they do not have the constant fear of tornados seeing as they are right in the middle of tornado alley.

With enough written letters of explanation, you can help the underwriters approve the loan if it all makes sense.

And again, @Brett Deas is correct. It is usually only 2 weeks out of the year you have to occupy the residence. Not 50%.

Let me know if this helps and if you have any more questions!

Jay Hurst · Answer

@Brian Willard   If you are applying for a conventional loan the standard is 15 days. You will sign an affidavit at closing that you will do so. So, how will they know?  Well, they likely won't but if you sign that document at closing you will want to do it. The 50% number is either a LO that does not really know the requirement or it is there internal requirement for their non-conventional loan program.  Again, IF that is really their requirement it will be in the closing docs, and if you sign knowing that you do not plan on following through with it IF they do find out you will wish you did not as fraud is a crime.

I am willing to bet that the LO is just not sure of the actual requirement and is just saying 50% when it is really the 15 days.  But, you might ask that direct question.  But, you do need to understand that you cannot use rental income to qualify on a second home application.

How do they know?

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