Second Home/Vacation Property Loan (10% down) an option?

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Second Home/Vacation Property Loan (10% down) an option?

Homeowner · Franklin, OH · Member since 2021 · 3 posts · 2 votes

What are the rules around purchasing a property using a second home/vacation property mortgage (10% down) and renting it out? What I've found so far is the property has to be self-managed for the first year and you either need to live in it 14 days or 10% of total days it was available to rent, whichever is greater. Is there anything else?

The self-managed part is easy enough to understand, but it's the "need to live in it" part that I am maybe not understanding. If we have the property available to rent for the entire year, then we'd have to go stay in it 36 days a year? Or is it only on days someone actually rented it, so out of the 365 total days we were only able to for 250 days which means we'd have to stay in it 25 days that year. How do you keep track of the days rented and the amount of time you'd need to spend there to make sure you are meeting the requirements? Is this also for the life of the loan or is it only for the first year?

Not looking to game the system and using the property for ourselves is part of the plan as it's where we normally vacation anyway, so considering that the 10% down payment is much more appealing if we are able to balance out the rules and keep the cash flow positive. We are also not to a point yet to talk to a lender and when we are we definitely will, which I'm sure they can also help navigate this and put us into a loan that meets what we're looking for.

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Jen WhiteheadPro Member

Real Estate Agent · Southern Maine · Member since 2019 · 40 posts · 36 votes

4y

My husband and I have two properties that we used second home loans and in both cases my lender knows that we also rent out to help cover the costs. You just have to spend so many weeks there to be considered second home. In both cases, we only put 10 percent down. I'd be happy to share my lenders contact info with you. She works for Annie Mac and they're a national lender. Good luck!

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Collin HaysBusiness Member
Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
4y
Quote from @JD Smith:

What are the rules around purchasing a property using a second home/vacation property mortgage (10% down) and renting it out? What I've found so far is the property has to be self-managed for the first year and you either need to live in it 14 days or 10% of total days it was available to rent, whichever is greater. Is there anything else?
The self-managed part is easy enough to understand, but it's the "need to live in it" part that I am maybe not understanding. If we have the property available to rent for the entire year, then we'd have to go stay in it 36 days a year? Or is it only on days someone actually rented it, so out of the 365 total days we were only able to for 250 days which means we'd have to stay in it 25 days that year. How do you keep track of the days rented and the amount of time you'd need to spend there to make sure you are meeting the requirements? Is this also for the life of the loan or is it only for the first year?
Not looking to game the system and using the property for ourselves is part of the plan as it's where we normally vacation anyway, so considering that the 10% down payment is much more appealing if we are able to balance out the rules and keep the cash flow positive. We are also not to a point yet to talk to a lender and when we are we definitely will, which I'm sure they can also help navigate this and put us into a loan that meets what we're looking for.

A loan for a vacation rental is a commercial loan. If the loan is backed by the federal government, that means 20% down minimum. If you buy the home as a second home, with a 10% down loan, you are guaranteeing and warranting that you are not using it as a rental. If you do otherwise, you are lying to a financial institution, a serious federal offense.

If the loan is not backed by the fed, you can do whatever you and the bank agree to.

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JD Smith
OP
Homeowner · Franklin, OH · Member since 2021 · 3 posts · 2 votes
4y
Quote from @Collin Hays:

Quote from @JD Smith:

What are the rules around purchasing a property using a second home/vacation property mortgage (10% down) and renting it out? What I've found so far is the property has to be self-managed for the first year and you either need to live in it 14 days or 10% of total days it was available to rent, whichever is greater. Is there anything else?
The self-managed part is easy enough to understand, but it's the "need to live in it" part that I am maybe not understanding. If we have the property available to rent for the entire year, then we'd have to go stay in it 36 days a year? Or is it only on days someone actually rented it, so out of the 365 total days we were only able to for 250 days which means we'd have to stay in it 25 days that year. How do you keep track of the days rented and the amount of time you'd need to spend there to make sure you are meeting the requirements? Is this also for the life of the loan or is it only for the first year?
Not looking to game the system and using the property for ourselves is part of the plan as it's where we normally vacation anyway, so considering that the 10% down payment is much more appealing if we are able to balance out the rules and keep the cash flow positive. We are also not to a point yet to talk to a lender and when we are we definitely will, which I'm sure they can also help navigate this and put us into a loan that meets what we're looking for.

A loan for a vacation rental is a commercial loan. If the loan is backed by the federal government, that means 20% down minimum. If you buy the home as a second home, with a 10% down loan, you are guaranteeing and warranting that you are not using it as a rental. If you do otherwise, you are lying to a financial institution, a serious federal offense.

If the loan is not backed by the fed, you can do whatever you and the bank agree to.

Thanks for the information Collin. I guess this adds even more confusion in that the second home requirements state renting it is fine as long as it follows the guidelines, not that it’s forbidden outright. But that’s assuming I understand the guidelines to begin with. 😆
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Account Closed
Real Estate Consultant · Franklin, IN · Member since 2012 · 80 posts · 71 votes
4y
I've heard of lenders doing 10% down but requiring you stay in it x days a year, sure. If you can do that, why not?
Another option is an actual commercial loan. It's 20% down but it doesn't go off DTI but income of the property (yes, even SFH for STR). And you can do with it what you want.
1 Reply
Collin HaysBusiness Member
Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
4y
Quote from @Account Closed:

I've heard of lenders doing 10% down but requiring you stay in it x days a year, sure. If you can do that, why not?
Another option is an actual commercial loan. It's 20% down but it doesn't go off DTI but income of the property (yes, even SFH for STR). And you can do with it what you want.

My bank has done a few “zero down, get me the $$ by lunch” deals, but I have quite a bit of business at the bank and have 7 figures sitting there with various business accounts.

It kind of comes down to your banking relationship.
[email protected]806-672-7102
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Jen WhiteheadPro Member
Real Estate Agent · Southern Maine · Member since 2019 · 40 posts · 36 votes
4y
My husband and I have two properties that we used second home loans and in both cases my lender knows that we also rent out to help cover the costs. You just have to spend so many weeks there to be considered second home. In both cases, we only put 10 percent down. I'd be happy to share my lenders contact info with you. She works for Annie Mac and they're a national lender. Good luck!
8 Reply
Collin HaysBusiness Member
Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
4y
Quote from @Jen Whitehead:

My husband and I have two properties that we used second home loans and in both cases my lender knows that we also rent out to help cover the costs. You just have to spend so many weeks there to be considered second home. In both cases, we only put 10 percent down. I'd be happy to share my lenders contact info with you. She works for Annie Mac and they're a national lender. Good luck!

Keep in mind, the originator is not the lender. Regardless of who knows what, and why, you will have to lie, in writing, to a financial institution to get a 90% loan for a rental if it is federally-insured mortgage.
[email protected]806-672-7102
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Matt Schreiber
New to Real Estate · NY · Member since 2020 · 72 posts · 42 votes
4y
Hey JD, you can do a ten percent vacation home loan if you use it as an Airbnb but not as a 12 month rental.
2 Reply
Collin HaysBusiness Member
Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
4y
Quote from @Matt Schreiber:

Hey JD, you can do a ten percent vacation home loan if you use it as an Airbnb but not as a 12 month rental.

Fannie Mae doesn’t care what platforms that your second home is marketed on. Per Fannie Mae rules, you can rent out a second home, but you must stay there a minimum of 10% of the nights that it is rented. So if you rent it 250 nights a year, you would have had to stay in the property 25 nights.
[email protected]806-672-7102
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JD Smith
OP
Homeowner · Franklin, OH · Member since 2021 · 3 posts · 2 votes
4y
Quote from @Collin Hays:

Quote from @Matt Schreiber:

Hey JD, you can do a ten percent vacation home loan if you use it as an Airbnb but not as a 12 month rental.

Fannie Mae doesn’t care what platforms that your second home is marketed on. Per Fannie Mae rules, you can rent out a second home, but you must stay there a minimum of 10% of the nights that it is rented. So if you rent it 250 nights a year, you would have had to stay in the property 25 nights.

Thanks Matt & Collin. So, it can be done just need to make sure to follow the rules.
0 Reply
John Bianco
Rental Property Investor · NJ · Member since 2020 · 17 posts · 9 votes
4y
@Jen Whitehead Hello I am actually looking to do the same tho g. Would you mind sharing your lenders info?
Thank you !
0 Reply
Jen WhiteheadPro Member
Real Estate Agent · Southern Maine · Member since 2019 · 40 posts · 36 votes
4y
@John Bianco, Absolutely, I'm not sure if we're supposed to post it on the forums like this but I'll try to send her contact information in a message.
0 Reply
Matthew Guidry
Member since 2019 · 9 posts · 4 votes
4y
Quote from @Collin Hays:

Quote from @Matt Schreiber:

Hey JD, you can do a ten percent vacation home loan if you use it as an Airbnb but not as a 12 month rental.

Fannie Mae doesn’t care what platforms that your second home is marketed on. Per Fannie Mae rules, you can rent out a second home, but you must stay there a minimum of 10% of the nights that it is rented. So if you rent it 250 nights a year, you would have had to stay in the property 25 nights.

What information is required to support that you stayed in the property the required amount of nights and who do you provide this information to? The lender or Fannie Mae?
1 Reply
Collin HaysBusiness Member
Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
4y
Quote from @Matthew Guidry:

Quote from @Collin Hays:

Quote from @Matt Schreiber:

Hey JD, you can do a ten percent vacation home loan if you use it as an Airbnb but not as a 12 month rental.

Fannie Mae doesn’t care what platforms that your second home is marketed on. Per Fannie Mae rules, you can rent out a second home, but you must stay there a minimum of 10% of the nights that it is rented. So if you rent it 250 nights a year, you would have had to stay in the property 25 nights.

What information is required to support that you stayed in the property the required amount of nights and who do you provide this information to? The lender or Fannie Mae?

In an audit, you’d need whatever info they demand. Not fun.
[email protected]806-672-7102
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Ryan Remington
Member since 2022 · 1 post · 0 votes
4y
@Jen Whitehead. I am also interested in a loan at 10% on a second home/investment property. Could you share your lender's info with me as well? Thanks!
0 Reply
Mel Adams
Investor · San Diego · Member since 2021 · 86 posts · 91 votes
4y
Hey JD - I used a second home loan for my STR. You can use it as a STR no problem, you don't need to lie to your lender about it. If you have a lender that says you can't, find a new lender. You cannot however do traditional 1 year leases using a second home loan.
My lender said I’d only need to stay at the property for “some time” during the year. I clarified by asking if it needed to be 14 days, 10% of booked days, any specific number, etc, she said no. This part specifically is extremely dependent on the lender you use.
Lenders have a million different takes on this type of loan, so I’d take everything with a grain of salt until you’re able to talk to one :) hope this helps!
3 Reply
Matt Frazier
New to Real Estate · Carver MN · Member since 2022 · 10 posts · 2 votes
3y

@Jen Whitehead Hi Jen, I would appreciate a referral to your lender as well. Looking in the Florida market. Thanks!
1 Reply
Nicholas Knaebel
Saint Clair Shores, MI · Member since 2017 · 32 posts · 12 votes
3y
Quote from @Jen Whitehead:

My husband and I have two properties that we used second home loans and in both cases my lender knows that we also rent out to help cover the costs. You just have to spend so many weeks there to be considered second home. In both cases, we only put 10 percent down. I'd be happy to share my lenders contact info with you. She works for Annie Mac and they're a national lender. Good luck!

Hey! That is great that you were able to do it. I would be grateful to get your lenders contact.
0 Reply
Jeremy Albert
Investor · Buffalo, NY · Member since 2019 · 6 posts · 1 vote
3y
Quote from @Collin Hays:

Quote from @JD Smith:

What are the rules around purchasing a property using a second home/vacation property mortgage (10% down) and renting it out? What I've found so far is the property has to be self-managed for the first year and you either need to live in it 14 days or 10% of total days it was available to rent, whichever is greater. Is there anything else?
The self-managed part is easy enough to understand, but it's the "need to live in it" part that I am maybe not understanding. If we have the property available to rent for the entire year, then we'd have to go stay in it 36 days a year? Or is it only on days someone actually rented it, so out of the 365 total days we were only able to for 250 days which means we'd have to stay in it 25 days that year. How do you keep track of the days rented and the amount of time you'd need to spend there to make sure you are meeting the requirements? Is this also for the life of the loan or is it only for the first year?
Not looking to game the system and using the property for ourselves is part of the plan as it's where we normally vacation anyway, so considering that the 10% down payment is much more appealing if we are able to balance out the rules and keep the cash flow positive. We are also not to a point yet to talk to a lender and when we are we definitely will, which I'm sure they can also help navigate this and put us into a loan that meets what we're looking for.

A loan for a vacation rental is a commercial loan. If the loan is backed by the federal government, that means 20% down minimum. If you buy the home as a second home, with a 10% down loan, you are guaranteeing and warranting that you are not using it as a rental. If you do otherwise, you are lying to a financial institution, a serious federal offense.

If the loan is not backed by the fed, you can do whatever you and the bank agree to.

This is not correct. You are allowed to receive rental income on second/vacation mortgages.
0 Reply
Caleb Broach
Member since 2023 · 1 post · 0 votes
3y
Quote from @Jen Whitehead:

My husband and I have two properties that we used second home loans and in both cases my lender knows that we also rent out to help cover the costs. You just have to spend so many weeks there to be considered second home. In both cases, we only put 10 percent down. I'd be happy to share my lenders contact info with you. She works for Annie Mac and they're a national lender. Good luck!
It would be great to have that info. I’m looking for a second home in MA/ME/NH area.
0 Reply
Chris B.
Investor and CPA · Georgetown, IN · Member since 2017 · 17 posts · 12 votes
2y
Hi @Jen Whitehead, Would it be possible to get your lender's information?
Thank you!
0 Reply
Sarah KensingerPro Member
Real Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
2y
You can also check out Jeff Chisum with Northpoint Bank. We haven't used him, but I've heard many good things about his work! Jeff can explain the different rules and the qualification of a vacation home loan.
[email protected]330-557-3021
0 Reply
Dee Shiozaki
Member since 2024 · 4 posts · 0 votes
2y
Quote from @Jen Whitehead:

My husband and I have two properties that we used second home loans and in both cases my lender knows that we also rent out to help cover the costs. You just have to spend so many weeks there to be considered second home. In both cases, we only put 10 percent down. I'd be happy to share my lenders contact info with you. She works for Annie Mac and they're a national lender. Good luck!
what lender ? I talked to rocket they said though it is 10% down min they usually end up being 25% down.
0 Reply
Raymond J. RodriguesBusiness Member
Lender · Miami, FL · Member since 2017 · 1k+ posts · 797 votes
2y
Good morning everyone. I have done plenty of 10% down vacation home loans. If you have any questions regarding the requirements and qualifications, always feel free to reach out. Happy to share the knowledge!
[email protected]619-456-8311
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Jen WhiteheadPro Member
Real Estate Agent · Southern Maine · Member since 2019 · 40 posts · 36 votes
2y
Quote from @Dee Shiozaki:

Quote from @Jen Whitehead:

My husband and I have two properties that we used second home loans and in both cases my lender knows that we also rent out to help cover the costs. You just have to spend so many weeks there to be considered second home. In both cases, we only put 10 percent down. I'd be happy to share my lenders contact info with you. She works for Annie Mac and they're a national lender. Good luck!
what lender ? I talked to rocket they said though it is 10% down min they usually end up being 25% down.
Both of them are with Harbor One Mortgage.
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