My partner and i are hoping to purchase a short term rental very soon for the first time.
My lender asked me how much we plan to put down for the purchase and as we understand it a vacation rental property can be purchased for as low as 10% down. My lender recently told me if the property is a second home we can put 10% down, but if we are purchasing a vacation rental we have to put down 15%, what we would like to know is why? We disclosed to our lender we plan to use house as an STR, but our lender insists on 15%.
Can anyone verify this? Is a must to put down 15%? Is this a requirement from every lender or could lenders say we will give you the loan, but this particular lenders requires 15% down? Any insight would be greatly appreciated! Thanks!
My partner and i are hoping to purchase a short term rental very soon for the first time.
My lender asked me how much we plan to put down for the purchase and as we understand it a vacation rental property can be purchased for as low as 10% down. My lender recently told me if the property is a second home we can put 10% down, but if we are purchasing a vacation rental we have to put down 15%, what we would like to know is why? We disclosed to our lender we plan to use house as an STR, but our lender insists on 15%.
Can anyone verify this? Is a must to put down 15%? Is this a requirement from every lender or could lenders say we will give you the loan, but this particular lenders requires 15% down? Any insight would be greatly appreciated! Thanks!
You are wanting to buy a property to use as a business with a partner so you are not buying a 2nd home. Its that simple.
My partner and i are hoping to purchase a short term rental very soon for the first time.
My lender asked me how much we plan to put down for the purchase and as we understand it a vacation rental property can be purchased for as low as 10% down. My lender recently told me if the property is a second home we can put 10% down, but if we are purchasing a vacation rental we have to put down 15%, what we would like to know is why? We disclosed to our lender we plan to use house as an STR, but our lender insists on 15%.
Can anyone verify this? Is a must to put down 15%? Is this a requirement from every lender or could lenders say we will give you the loan, but this particular lenders requires 15% down? Any insight would be greatly appreciated! Thanks!
You are wanting to buy a property to use as a business with a partner so you are not buying a 2nd home. Its that simple.
My partner and i are hoping to purchase a short term rental very soon for the first time.
My lender asked me how much we plan to put down for the purchase and as we understand it a vacation rental property can be purchased for as low as 10% down. My lender recently told me if the property is a second home we can put 10% down, but if we are purchasing a vacation rental we have to put down 15%, what we would like to know is why? We disclosed to our lender we plan to use house as an STR, but our lender insists on 15%.
Can anyone verify this? Is a must to put down 15%? Is this a requirement from every lender or could lenders say we will give you the loan, but this particular lenders requires 15% down? Any insight would be greatly appreciated! Thanks!.
I can only speak from own experience. I bought a second home/vacation home I use as a STR. My lender required that I could not have a lease on the property. Short term rental ok. I needed to use it at least 2 weeks a year. I did 10% down. It varies from lender to lender.
Lender · Member since 2020 · 331 posts · 209 votes
3y
Yep it comes down to your primary intention. If your intention is to purchase a vacation home and you rent out when you’re not there, it’s a vacation home. If your primary intention is to use as investment, it’s an investment home.
Real Estate Agent · NH & MA · Member since 2021 · 457 posts · 291 votes
3y
I'm not sure if it matters whether you have a partner in it or not, I think for a vacation home you just have to use it or "intend to use it" for a certain percentage of each year. I may be wrong but I believe its about 1 week or so.
I was able to only do 10% but it was considered a second home loan, so maybe see if your lender has any options on how to make this work or at least lets you know what the exact requirements are.
I'm not sure if it matters whether you have a partner in it or not, I think for a vacation home you just have to use it or "intend to use it" for a certain percentage of each year. I may be wrong but I believe its about 1 week or so.
I was able to only do 10% but it was considered a second home loan, so maybe see if your lender has any options on how to make this work or at least lets you know what the exact requirements are.
think its 14 days. also you cannot turn it over to a management company
Let's assume you could qualify for a second-home mortgage (see below about that), you should ask if you have to pay points to be allowed to put down only 10%. Our STR/Airbnb/second-home clients in Colorado are seeing a lot of lenders require they pay 1, 2 or 3 points just to get that 10% loan. (A "point," if you don't know is 1% of loan value, so if you have a $500,000 mortgage and have to pay 2 points, you're doling out $10,000 before other costs.)
About the loan itself ... As others have said, if you're not planning to use it as a second home, then you can't get a second-home loan.
Now, if you plan to use it for a portion of the year, you may qualify. There are other requirements for a second-home mortgage (like, it can't have a property manager responsible for occupancy, to name one).
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
3y
Hey @Steve Bell what others have said is correct. You are buying it as an investment not as a second home. You were right to let them know.
15% is great if that is what they are offering. Most investment property loans are more like 25% down plus points.
What's the interest rate?
Even if you use it 14 days a year (which is more about tax deductibility than anything else), a 10% down vacation/second home mortgage loan usually has clauses that state it can't be used as a rental at all and is for personal use.
Thanks everyone! Follow up, do borrowing rules about property as an investment or a second home change by state/county based on rules of regulations for investment properties in the area you are buying in? And what if currently there are no regulations for investment properties in the area you are buying in? Thanks again for any insight!
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
3y
@Steve Bell, it really isn't where you buy it, but who you use as a lender. They all have different rules around these things. The feds have rules around lending that everyone follows. States also have rules.
What you are talking about are usually part of the lenders rules. If it is FHA then they follow those rules. If it is a conventional mortgage, then they set those for the most part.
Grand Rapids, MI · Member since 2022 · 11 posts · 3 votes
3y
Steve - Like others have stated it comes down to your plans for the property. You can get a vacation home loan from a bank that will require 10% down, but you then must "use" the property for 14 days to qualify. If you want it turned over to a management company as an investment, it will be classified as an investment property which different lenders may require up to 20 or even 25% down as a secondary investment home.
Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
3y
@Steve Bell difference is owner occupancy vs strictly investment purposes. Second home, you will occupy. Vacation rental is exactly that; a rental you use for investments purposes to rent to vacationers. When you sign loan docs on investment purpose loans, they explicitly state that you CANNOT occupy the home. 15% down in this market is great, I wouldn't bock at that and take the deal since you never know where the market will be in 3o days.