Investor · Latonia, KY · Member since 2012 · 107 posts · 50 votes
I've spoken to several bankers including some referred from The Short Term Shop about doing a 10% down vacation property loan and any time I've mentioned considering rental income they have all stated that if it's an investment property I would need to do 20% down. That's not a problem either way but I'd much rather do 10% vs 20% and keep a lot of cash just in case. Do most just keep their STR intentions to themselves?
Real Estate Agent · USA · Member since 2016 · 909 posts · 1k+ votes
5y
@Mike S just to echo what everyone else has said:
You can’t utilize projected rent income to qualify for a second home loan, but you can (under current guidelines so definitely discuss and be transparent with your lender) you ARE allowed to rent out a second home out when you aren’t using it as long as you maintain control of the property (i.e. no lease and no property management contract that takes control away from you). The current guideline for the time you need to spend there is around 2 weeks a year. But again, discuss with your loan officer.
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
5y
Hey @Mike S, when we bought our house, we did 20% down but never said it would be a vacation rental. We hadn't decided to do that yet so just went forward.
There was a clause in the loan papers that said it was a no-no to use it for rental purposes, but I didn't see that until after we closed and listed it. The loan was sold almost immediately so I didn't worry about it. As long as they get their money on time, I doubt they will be freaking out.
So, it is against the mortgage clause for 2nd homes to use it as a rental.
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
5y
@Mike S, I am sure each mortgage has language that is different. Each company does things a bit differently. Our just said rental. It didn't specify short or long term. I doubt it makes a difference.
Honestly I would guess they would know what I was doing. I use Proper for my insurance which specializes in vacation rental insurance. If they were paying attention they would wonder. Like I said, I doubt they will make a fuss with us. We just keep on keeping on.
I did bug me at first as I hate skirting rules. Especially since I am a bit hard on folks who come here looking to skirt the law when it comes to STR laws and regs. But it is what it is!
Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
5y
@Mike S by location I mean market.
If you’re planning to rent it it’s probably an investment. But talk to your lender. If you check the news second home loans are getting a lot of attention right now.
Investor · Placitas, NM · Member since 2019 · 105 posts · 61 votes
5y
Should be careful regarding fraudulent reps and certs. I am not a lawyer, but obtaining a mortgage under fraudulent representation could be pretty serious. I would be transparent when talking to lenders regarding your intentions.
Investor · Latonia, KY · Member since 2012 · 107 posts · 50 votes
5y
I've been very upfront so far. All I have read and heard on here and other sources has said use a 10% down second home loan and then rent it short term. I was very surprised that it was an issue.
Rental Property Investor · Youngstown, NY · Member since 2019 · 17 posts · 7 votes
5y
@mikeS I am/was under the same impression as you about 10% for a second home and then renting it for STR.....BUT thought I read you (personally) have to use the property so many times a year to be considered a 2nd home. I am a total newbie though, and am still getting the lingo down. My husband and I are analyzing and almost getting to the pre-approval stage.
@mikeS I am/was under the same impression as you about 10% for a second home and then renting it for STR.....BUT thought I read you (personally) have to use the property so many times a year to be considered a 2nd home. I am a total newbie though, and am still getting the lingo down. My husband and I are analyzing and almost getting to the pre-approval stage.
There was a BP podcast where 10% down was discussed and I do plan to stay at the property occasionally so that shouldn't be a problem. If it's a big deal I'll just do 20% down and call it a day but I was hoping to hold on to as much cash as possible.
Rental Property Investor · OH · Member since 2019 · 51 posts · 52 votes
5y
As @Luke Carl mentioned, vacation home loans are getting a lot of attention right now. Lenders have increased rates over the past few weeks. See the below article for further explanation. As far as I understand, this shouldn’t have an effect on 10% down vs 20% down.
Rental Property Investor · Sneads Ferry NC · Member since 2017 · 11 posts · 6 votes
5y
@Kyra Waters @Mike S
Newbie investor here undercontract on our 2nd vacation home loan.
Our lender was very laid back on the vacation loan requirements and it was acceptable to spend 2 weeks (14 days) per year there to qualify for the loan. Only caveat about the rental income is it could not be LTR (lease) and we have to manage it on airbnb/vrbo (can't hire out the management to retain complete control over the schedule)
Real Estate Agent · Sevierville, TN · Member since 2015 · 1k+ posts · 1k+ votes
5y
@Mike S The 10% down loan is meant for a second home/vacation home loan. Many people will purchase a second home using these loans and when they are not using it, they will rent it short-term on AirBNB or VRBO. I am not a lender but my understanding of the current regulations on these loans is that so long as you intend to use it as a second home, AND you retain control over it (e.g. you're self-managing and not handing it over to a PM), there is no rule against utilizing it as a vacation rental when you're not using it personally. Do verify with your lender.
What @John Underwood said is correct - you can't use projected rental income to offset the debt from a vacation home, just like you wouldn't be able to use projected rental income to offset the debt from a primary home loan. You can only use projected rental income to offset debt from an investment loan, which is a minimum 20% down.
So it boils down to understanding what each product is meant for. You can purchase a property, plan to vacation there a couple weeks a year, and rent it out the rest of the time on your own, and utilize the 10% down loan to purchase it as a vacation home. If you have no intention of using the property personally, then by all means get an investment loan at 20% down and use projected rental income to help offset the debt.
@Mike S The 10% down loan is meant for a second home/vacation home loan. Many people will purchase a second home using these loans and when they are not using it, they will rent it short-term on AirBNB or VRBO. I am not a lender but my understanding of the current regulations on these loans is that so long as you intend to use it as a second home, AND you retain control over it (e.g. you're self-managing and not handing it over to a PM), there is no rule against utilizing it as a vacation rental when you're not using it personally. Do verify with your lender.
What @John Underwood said is correct - you can't use projected rental income to offset the debt from a vacation home, just like you wouldn't be able to use projected rental income to offset the debt from a primary home loan. You can only use projected rental income to offset debt from an investment loan, which is a minimum 20% down.
So it boils down to understanding what each product is meant for. You can purchase a property, plan to vacation there a couple weeks a year, and rent it out the rest of the time on your own, and utilize the 10% down loan to purchase it as a vacation home. If you have no intention of using the property personally, then by all means get an investment loan at 20% down and use projected rental income to help offset the debt.
Thanks for the detailed info! I have never been into this price point before so I have no idea what I'll qualify for but if I can do 10% I'll do that and be "forced lol" to stay in the smokies for a couple weeks a year. If not then we'll go 20% and be able to use the income. Either way should be good to go up to about 500K, and self managing through AirBnB so hopefully I can find something!
Real Estate Agent · USA · Member since 2016 · 909 posts · 1k+ votes
5y
@Mike S just to echo what everyone else has said:
You can’t utilize projected rent income to qualify for a second home loan, but you can (under current guidelines so definitely discuss and be transparent with your lender) you ARE allowed to rent out a second home out when you aren’t using it as long as you maintain control of the property (i.e. no lease and no property management contract that takes control away from you). The current guideline for the time you need to spend there is around 2 weeks a year. But again, discuss with your loan officer.
Rental Property Investor · Youngstown, NY · Member since 2019 · 17 posts · 7 votes
5y
@alan martin Yes, I have read that as well. Congratulations on your second rental! I am excited to get started, just trying to get as much knowledge as possible and educate myself / ourselves.
Rental Property Investor · Youngstown, NY · Member since 2019 · 17 posts · 7 votes
5y
@Mike S I am with you on holding on to as much cash as possible. @Avery Carl again I am a very early/new to RI, do you recommend using a HELOC for a down payment on a first property?
Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
5y
@Michael Baum
I agree with Michael. You are not going to find this level of information on other Internet forums.
Again.... CHECK WITH YOUR LENDER!
Also.... what was happening 4 years ago may not be happening today. Regulations change.
Two more points....
Banks pivot. Some banks may say “no more auto loans. No more second home loans” etc. So never get too comfortable with your system. You must also pivot.
And last..... to get a second home loan you must qualify using DTI. In other words you must be able to AFFORD the house you live in and the second home mortgages with the funds from your day job. To me its a no brainer high quality loan that any bank would want. But again.... it's in the news at the moment so pay attention.
Rental Property Investor · Sneads Ferry NC · Member since 2017 · 11 posts · 6 votes
4y
@Melissa Yu Danielle Wiram at Movement Mortgage. It seems Movement comes up alot with the conversations around the vacation home loans. (Alot is maybe 3 times that I have seen them mentioned but hey! It's a subjective measure) someone else a few posts up mentioned another Movement Rep.