Investor · New York City, NY · Member since 2016 · 17 posts · 1 vote
Hi there, my wife and I live in NYC but are in the process of closing on our first home in Nashville. We love Nashville and plan to live in the home part time and list it as a short term rental when back in NYC.
While securing financing, one well-respected lender told us we can easily classify this as a second home and qualify for a great rate with 10% down. Another well-respected lender said the CFPB is actively penalizing buyers who rent out second homes and will make an example out of us. Who do we listen to?
I think most posters are missing the issue that your lender is getting at. It's that if you rent the home out as a vacation rental, it's not a second home but an investment property. Second homes and investment properties are very different for conventional financing purposes (different rates, different down payment requirements, etc.) My understanding is that second homes can only be rented for some short period of time (I think it's like 14 days), otherwise they are considered investment properties. Basically, if you represent it's going to be a second home and then rent it out a lot, you will be lying about your intended use of the home. This is like saying a home will be owner occupied home and then renting it out. That's mortgage fraud and is just not worth the risk.
Highly unlikely you will go to jail for this (unless moving from NY to Nashville is a crime). I'm not understanding what the CFPB (Consumer Finance Protection Bureau) would be able to penalize you for. My understanding is they are looking to crack down on AirBnB and large scale operators, not small (single-unit) hosts.
A few communities across the US have taken steps to address AirBnB rentals in their city limits to ensure that they follow similar zoning requirements to other hotels, and pay hotel/motel tax as well. But these rules are typically in the form of municipal infractions that would result in fines.
Mostly the cities doing this are popular travel areas, which Nashville might be one of these. I would put in a call to your local planning office to see if they have any ordinances for AirBnB rentals.
Nashville is cracking down on unregistered AirBnB rentals, but I don't believe it would result in actual jail time. You will need to get a permit and pay Hotel Tax and Sales tax. If you don't you could end up getting fined. Here is a link to everything you would need to know.
The city of Nashville is cracking down hard on short term rentals. I'm not giving any advice, all I'm saying is do extra due diligence on this purchase.
@Kristopher S.I believe the issue at hand is people using a loan for a purportedly personal use with the intention of it being for an investment. Short-term rentals are just a highly visible example of that. If it is truly your second home, and you just rent it out some of the time, it shouldn't be an issue. But I think it would be worth it to check in to what exactly constitutes a second home or investment property, for that matter, as it relates to your loan.
I think most posters are missing the issue that your lender is getting at. It's that if you rent the home out as a vacation rental, it's not a second home but an investment property. Second homes and investment properties are very different for conventional financing purposes (different rates, different down payment requirements, etc.) My understanding is that second homes can only be rented for some short period of time (I think it's like 14 days), otherwise they are considered investment properties. Basically, if you represent it's going to be a second home and then rent it out a lot, you will be lying about your intended use of the home. This is like saying a home will be owner occupied home and then renting it out. That's mortgage fraud and is just not worth the risk.