10% Down Vacation Home/STR financing not going anywhere

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10% Down Vacation Home/STR financing not going anywhere

Jeff ChisumPro Member
Lender · All 50 States · Member since 2020 · 248 posts · 142 votes

Fannie Mae 10% down loans for second homes/STR properties are not going away April 1st just in case you heard something different.

A pic of my lake house that I used a 10% down Fannie loan to buy for emphasis.

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Cole Britting
Investor · NH · Member since 2020 · 175 posts · 75 votes
4y

@Jeff Chisum From what I heard from a lender, they are going to be getting much more expensive rendering them almost obsolete. Is that true?

I'd love to own a lake house some day, congrats on the purchase!

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  • Dustin Allen
    Real Estate Agent · South Lake Tahoe, CA · Member since 2016 · 680 posts · 644 votes
    4y

    @Jeff Chisum

    They are going to get more expensive though.

    0Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y

    Nice house!!

    0Reply
  • Jeff ChisumPro Member
    OP
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    4y
    Originally posted by @Bruce Woodruff:

    Nice house!!

     Thank you!  We love it there!

    0Reply
  • Jeff ChisumPro Member
    OP
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    4y
    Originally posted by @Dustin Allen:

    @Jeff Chisum

    They are going to get more expensive though.

     True.  I talk to about 100 people a month and I would say roughly 50% didn't know about the second home occupancy loan and 80% surprised the rate similar to a primary residence.  

    1Reply
  • Cole Britting
    Investor · NH · Member since 2020 · 175 posts · 75 votes
    4y

    @Jeff Chisum From what I heard from a lender, they are going to be getting much more expensive rendering them almost obsolete. Is that true?

    I'd love to own a lake house some day, congrats on the purchase!

    2Reply
  • Jeff ChisumPro Member
    OP
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    4y
    Originally posted by @Cole Britting:

    @Jeff Chisum From what I heard from a lender, they are going to be getting much more expensive rendering them almost obsolete. Is that true?

    I'd love to own a lake house some day, congrats on the purchase!

     Thanks Cole!  We love it there and own another home on a golf course about 20 minutes from the lake house.  

    Far from the truth.  I visit with about 100 clients a month consulting on financing strategies around this asset class.  90% are surprised when I tell them the second home occupancy loan rates are similar to what you would get on a primary.  Now rates will be similar to what is currently available for investment property loans.  Still 10% down on a property that will out perform a LTR in cashflow and appreciation.  I'm fine with the rate.  Would I rather have it lower...sure.  Obsolete...not even close.  

    3Reply
  • Cole Britting
    Investor · NH · Member since 2020 · 175 posts · 75 votes
    4y

    @Jeff Chisum Thank you for the clarification! What are the occupancy rules for using the second home loan? I’ve heard it’s either 14 days or 10% of the days you rent it for.

    0Reply
  • Jeff ChisumPro Member
    OP
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    4y
    Originally posted by @Cole Britting:

    @Jeff Chisum Thank you for the clarification! What are the occupancy rules for using the second home loan? I’ve heard it’s either 14 days or 10% of the days you rent it for.

    “At some point during the year”. The 14 days and 10% of days…is all tied to business vs personal IRS 

    1Reply
  • Matt Ternullo
    Real Estate Agent · Member since 2021 · 20 posts · 26 votes
    4y

    The requirements I read said it cannot have any agreements that put another company in control of occupancy, does that mean it can't be put in a property managers hands even if you occupy it at some point in time? Or just not before the sale can said agreements not be entered in to?

    0Reply
  • Jeff ChisumPro Member
    OP
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    4y
    Originally posted by @Matt Ternullo:

    The requirements I read said it cannot have any agreements that put another company in control of occupancy, does that mean it can't be put in a property managers hands even if you occupy it at some point in time? Or just not before the sale can said agreements not be entered in to?


    I have yet to come across a property management agreement that required the owner to make the property available “x” amount of days a year or they would be in breach of contract.  So not an issue.  Same with listing it on Airbnb or VRBO.  Those sites do not facilitate legal lease agreements.  So good there too

    2Reply
  • Johnathon Sesi
    Realtor · Rochester Hills, MI · Member since 2018 · 27 posts · 18 votes
    4y

    @Jeff Chisum

    Thanks for that info, sir! How many vacation/2nd homes is one personal allowed to have?

    0Reply
  • Jeff ChisumPro Member
    OP
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    4y

    Fannie Mae will allow an individual to have 10 mortgages in their name. Nothing to say those couldn't be all second home occupancy loans. I have the ability to do an additional 5 DSCR loans in the name of an LLC.

    3Reply
  • Wilson Hunter
    Investor · Greenville, SC · Member since 2020 · 210 posts · 302 votes
    4y

    Don’t the rates for these loans go up by at least a half a percent on Monday?

    0Reply
  • Alex S.
    Investor · Metro East of St. Louis (Illinois) · Member since 2016 · 255 posts · 211 votes
    4y

    2nd home loans are getting more expensive, but that doesn't mean they're obsolete for every deal.

    "This week, the Federal Housing Finance Agency announced it’s increasing the upfront fees for second-home loans sold to Fannie Mae and Freddie Mac by as much as about 3.9% starting in April.

    Redfin estimates that’ll cost a typical buyer an extra $13,500 on a $400,000 home. Fairweather said regulators may be trying to get a handle on what could be an emerging bubble in the housing market."

    2Reply
  • Steve Sauro
    Rental Property Investor · MD · Member since 2021 · 21 posts · 4 votes
    4y

    Hey Jeff -  

    With 10% down are you stuck with PMI? Or did you get a second to cover?

    0Reply
  • Jeff ChisumPro Member
    OP
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    4y
    Originally posted by @Steve Sauro:

    Hey Jeff -  

    With 10% down are you stuck with PMI? Or did you get a second to cover?

    Because it's an owner occupied product the rate is really low- typically .2-.24% of the loan amount. After two years you can have it reappraised to get rid of PMI. Better option than paying 5% on a second

    2Reply
  • Steve Sauro
    Rental Property Investor · MD · Member since 2021 · 21 posts · 4 votes
    4y

    Thanks Jeff. Totally understand. So you pay the PMI assuming it will appraise and you can refi. LOVE the different techniques I learn here. Thanks

    0Reply
  • Johnathon Sesi
    Realtor · Rochester Hills, MI · Member since 2018 · 27 posts · 18 votes
    4y

    @Alex S. And by “get a handle on”, do they mean “get a piece of the pie”?

    0Reply
  • Alan Lacey
    Lender · Grand Rapids, MI · Member since 2019 · 175 posts · 82 votes
    4y

    @Jeff Chisum the rates will be right in top of investment for any ltv over 75. Other than going to 90 lc not much difference. I have found many clients were unwittingly committing mortgage fraud with second homes at least in first year of ownership as occupancy rider required that in first year it be used primarily for personal use after 12 month it no longer mattered and could be a full time rental.

    0Reply
  • Alan Lacey
    Lender · Grand Rapids, MI · Member since 2019 · 175 posts · 82 votes
    4y

    @Cole Britting you can find the second home occupancy much restrictions in the second home rider. It is only applicable for first year of ownership

    https://singlefamily.fanniemae.com/media/4051/display

    1Reply
  • Jeff ChisumPro Member
    OP
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    4y

    Subjective interpretation of the policy. All comes down to availability and control. Fannie modernized the policy to reflect was going on in this space. They are in the business of performing loans. They loved fully qualifying borrowers could supplement that ability with STR income.

    0Reply
  • Luka Milicevic
    Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
    4y

    @Jeff Chisum so can you use this loan and buy a second home and just rent it out 355 days of the year as a STR and just use it for 10 days a year as a second home?

    1Reply
  • Joe Mathew
    Rental Property Investor · White Plains, NY · Member since 2020 · 94 posts · 36 votes
    4y

    @Dustin Allen yup. Like everything else

    0Reply
  • Alex S.
    Investor · Metro East of St. Louis (Illinois) · Member since 2016 · 255 posts · 211 votes
    4y

    @Johnathon Sesi

    😂

    Don't get all conspiracy on me!

    0Reply
  • Johnathon Sesi
    Realtor · Rochester Hills, MI · Member since 2018 · 27 posts · 18 votes
    4y

    @Alex S.

    Couldn’t help it…my tinfoil hat was chiming on high alert. 😂😂

    1Reply
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