New to str, is second home/vacation home 10% down still an option?

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New to str, is second home/vacation home 10% down still an option?

Andrew Schlagheck
Member since 2023 · 3 posts · 1 vote

Evening all.

Apologies for the basic post. Reading and researching as much as I can on str (reading Averys book.) Posts here, podcasts...alot of reference to vacation home 10% down loans. My local lender does not seem familiar. Is this still an option or have laws changed?

Appreciate all the knowledge shared here!

Andy

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Kevin Luttrell
Lender · Orange County, CA · Member since 2019 · 299 posts · 255 votes
3y

Fannie Mae expressly permits renting out a property secured with 2nd home financing. There is no mortgage fraud. Only stipulations are that you occupy the property for "some portion of the year" and that it not be controlled by a management company. And you can't use the rental income for qualifying. 

https://selling-guide.fanniema...

Like Ryan mentioned, Fannie/Freddie recently increased their LLPAs substantially for 2nd home loans so the rates and fees are substantially higher than they used to be. Pricing is now in-line with investment property pricing, so there is no longer a benefit to using 2nd home financing except to do 10% down (vs 15% down for investment property)

This is for normal Conventional financing. Small community banks, credit unions and other lenders who don't sell their loans in the secondary market may have different guidelines. 

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  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    3y

    If you're buying it as a second home, but using it as a STR be careful with mortgage fraud.

    Having a family friend of ours get a due on sale for their house in the smokies with the same intent. Seeing a lot of this investigating for mortgage fraud now happening with rates higher and banks looking to make money.

    1Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    3y
    Quote from @V.G Jason:

    If you're buying it as a second home, but using it as a STR be careful with mortgage fraud.

    Having a family friend of ours get a due on sale for their house in the smokies with the same intent. Seeing a lot of this investigating for mortgage fraud now happening with rates higher and banks looking to make money.

    Try a smaller bank and make sure you use house at least 14 days yourself.

    4Reply
  • Ryan MoyerBusiness Member
    Property Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 993 posts · 1k+ votes
    3y

    Still an option, just less common and also more expensive than before.

    Cosmic Vacations4.9172 Reviews
    WebsiteView Page
    3Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    3y

    Hey @Andrew Schlagheck, welcome to the forum! Like others have posted, it is still an option, but most lenders don't allow you to rent it out. There really isn't a law but a clause in the mortgage documents you sign.

    If you sign it knowing you will be renting it, you would be committing mortgage fraud like @V.G Jason said.

    @John Underwood has an excellent point as usual. When we bought our place, we got a 2nd home loan (we put down 20% anyways) and used a small local bank. No clause. 

    0Reply
  • Sarah KensingerPro Member
    Real Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
    3y

    Yes, this is very much still an option! Just use it for at least 14 days, and it can't be within a certain mileage of another home you own. The Mortgage Shop in TN did a short YouTube video with Tony and Sarah Robinson that was very informative! I know so many people that got into the STR space by utilizing a 2nd home loan! Some people do it more than once, so long as the home is different and not near another home you own. Find a lender that is knowledgeable in STR, and they can help you with not only the laws but your situation, not every lender understands what is or isn't allowed with STR.

    [email protected]330-557-3021
    2Reply
  • Andrew Schlagheck
    OP
    Member since 2023 · 3 posts · 1 vote
    3y
    Thanks all for the replies!  I'm not looking to commit any fraud, i think my terminology might have gotten caught up in my question.  Appreciate the info!
    1Reply
  • Kevin Luttrell
    Lender · Orange County, CA · Member since 2019 · 299 posts · 255 votes
    3y

    Fannie Mae expressly permits renting out a property secured with 2nd home financing. There is no mortgage fraud. Only stipulations are that you occupy the property for "some portion of the year" and that it not be controlled by a management company. And you can't use the rental income for qualifying. 

    https://selling-guide.fanniema...

    Like Ryan mentioned, Fannie/Freddie recently increased their LLPAs substantially for 2nd home loans so the rates and fees are substantially higher than they used to be. Pricing is now in-line with investment property pricing, so there is no longer a benefit to using 2nd home financing except to do 10% down (vs 15% down for investment property)

    This is for normal Conventional financing. Small community banks, credit unions and other lenders who don't sell their loans in the secondary market may have different guidelines. 

    6Reply
  • Andrew SteffensBusiness Member
    Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
    3y

    We have recently had clients purchase homes in FL with 10% down second home financing.  Shop around rates and terms (even how often you can rent it) vary greatly by lender.

    [email protected]813-563-0877
    Vacation Rentals of Florida53 Reviews
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  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    3y

    So just a clarification, FNMA doesn't have any issue with renting a home with a 2nd home mortgage, but lenders often do.

    In another post, I decided to call 8 local lenders (3 banks, 3 credit unions and 2 dedicated lenders) about the due on sale clause. I also asked about the 2nd home loan with the no rental clause and each one did have that piece of paperwork in their stack.

    If you sign that form saying you won't rent the house, then rent the house, that is mortgage fraud. 

    It all depends on the lender. We used a small local bank due to lot line issues along the lake. They didn't have the do not rent form. They did sell the loan almost immediately to US Bank, which actually does have that form when they originate the loan. Didn't apply to us.

    I am not disparaging @Kevin Luttrell, but that clause/form is present from a lot of lenders even though FNMA doesn't require it. So saying it isn't mortgage fraud isn't 100% accurate.

    0Reply
  • Kevin Luttrell
    Lender · Orange County, CA · Member since 2019 · 299 posts · 255 votes
    3y
    Quote from @Michael Baum:

    So just a clarification, FNMA doesn't have any issue with renting a home with a 2nd home mortgage, but lenders often do.

    In another post, I decided to call 8 local lenders (3 banks, 3 credit unions and 2 dedicated lenders) about the due on sale clause. I also asked about the 2nd home loan with the no rental clause and each one did have that piece of paperwork in their stack.

    If you sign that form saying you won't rent the house, then rent the house, that is mortgage fraud. 

    It all depends on the lender. We used a small local bank due to lot line issues along the lake. They didn't have the do not rent form. They did sell the loan almost immediately to US Bank, which actually does have that form when they originate the loan. Didn't apply to us.

    I am not disparaging @Kevin Luttrell, but that clause/form is present from a lot of lenders even though FNMA doesn't require it. So saying it isn't mortgage fraud isn't 100% accurate.

    That's interesting. My 2nd home mortgage did not include that and I have not worked for a mortgage company that included it. 

    I'm not surprised on the 3 banks and 3 credit unions - they can have guidelines that differ greatly from Fannie/Freddie even when they say they're originating a Conventional Fannie/Freddie loan. 

    Also, I know many in the industry who have no idea Fannie permits rental income for 2nd homes. Most loan officers are trained to think that 2nd home loans are pretty much only for vacation properties, and if you plan to rent it at all then it's an investment property. So if you speak with a less experienced loan agent, you may get an incorrect answer on this (and they will surely be very confident in their incorrect answer). 

    In any case, it would be wise to tackle this up-front like Michael did rather than assume you're good. Try working with a direct lender with no overlays and/or an experienced loan agent who knows their stuff. 

    1Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    3y
    Quote from @John Underwood:
    Quote from @V.G Jason:

    If you're buying it as a second home, but using it as a STR be careful with mortgage fraud.

    Having a family friend of ours get a due on sale for their house in the smokies with the same intent. Seeing a lot of this investigating for mortgage fraud now happening with rates higher and banks looking to make money.

    Try a smaller bank and make sure you use house at least 14 days yourself.

    It's a smaller bank that's calling on it.

    Know several now that are being investigated for due on sale, so it's definitely getting more prevalent. 
    0Reply
  • Alan Lacey
    Lender · Grand Rapids, MI · Member since 2019 · 175 posts · 82 votes
    3y

    you can look up Fannie Freddie second home rider directly on the agency websites. After first year there is no restriction on renting. The first year it has to be primarily for personal use. So 183 days the first year no requirement after that. So certainly restrictions, and the 14 day requirement is for irs not lenders.  Non agency loans can certainly have different second home riders, but most tend to use same verbiage. 
    https://singlefamily.fanniemae...

    0Reply
  • Brooklyn McCarty
    Investor · Member since 2022 · 1k+ posts · 754 votes
    3y

    Lenders still do them, however if you are using it as a investment property just get a investment loan

    0Reply
  • Andrew Schlagheck
    OP
    Member since 2023 · 3 posts · 1 vote
    3y

    Thanks all for the replies!

    0Reply
  • January Johnson
    Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 486 votes
    3y
    Quote from @Andrew Schlagheck:

    Evening all.

    Apologies for the basic post. Reading and researching as much as I can on str (reading Averys book.) Posts here, podcasts...alot of reference to vacation home 10% down loans. My local lender does not seem familiar. Is this still an option or have laws changed?

    Appreciate all the knowledge shared here!

    Andy


    January Johnson from Avery's team here....

    It is not an option on the Emerald Coast if you want to buy a condo.  Those require 25% down and no vacation/second home loan.

    0Reply
  • Ricardo Hidalgo
    Real Estate Agent · Member since 2019 · 569 posts · 257 votes
    3y
    Quote from @Andrew Schlagheck:

    Evening all.

    Apologies for the basic post. Reading and researching as much as I can on str (reading Averys book.) Posts here, podcasts...alot of reference to vacation home 10% down loans. My local lender does not seem familiar. Is this still an option or have laws changed?

    Appreciate all the knowledge shared here!

    Andy


     Due to higher rates and risk you may have to put more down at the moment and to cash flow unless it is a value add. I think you could get away with 15-20% on a townhome or single family home on the beach. Reserves matter too and cashflow of other properties. I would not advise going low leverage with changing values. 

    0Reply
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