Financing Secondary Home Purchases. Who are you using?

Question

Hi BP,

Who are you using to finance your secondary home purchases ? 10% Down financing options that are not lending based on the borrower, but based on the asset?

Would greatly appreciate any suggestions as I"m doing a 1031 exchange into a secondary home in the coming months (closing November 20th on sale).

Best,

Dave Foster · Answer

@Luke Carl, thanks for the shout out. Both you and @Cassidy Burns are sort of correct - from the perspective of the 1031. The requirement for a second home loan is usually only that it be xxx number of miles from your primary residence. And that you agree to use it xxx number of weeks for personal use (usually 2). Since 1031 doesn't care where the property is located and since some personal use is allowed. It is perfectly fine from the 1031 perspective to use 2nd home financing for a vacation rental that will be part of a 1031.

Where the issue usually comes in is that many times lenders will not allow the down payment for a 2nd home loan to come from a 1031. It is the lender that perceives that a property cannot be used both for investment and as a 2nd home.

And with that I"ll be the Mortgage Shop just got a whole new line of business :)

Where the issue usually comes in is that many times lenders will not allow the down payment for a 2nd home loan to come from a 1031.  It is the lender that perceives that a property cannot be used both for investment and as a 2nd home.

And with that I"ll be the Mortgage Shop just got a whole new line of business :)

Joshua Strickland · Answer

I think you are looking for a DSCR loan, but that doesn’t come with a 10% down payment.

Luke Carl · Answer

@Dave Foster can exchange investment for second home?

Luke Carl · Answer

None of the things you’ve mentioned are going to work for a second home. You need an investment conventional or commercial lending.

Collin Hays · Answer

I have always considered 20 to 25 percent down on a STR loan the cost of doing business.  If you are scoring a 10 percent down deal, something is amiss somewhere.  Banks just rarely do it.

Cassidy Burns · Answer

Hey @Luke Carl I think you are mistaken.  You can do a 1031 exchange from investment property to a secondary home as long as you meet the 2 criteria:

-You can only use the home for 2 weeks out of the year for personal use

-You must collect income/ rent the home for 2 weeks out of the year for investment use.

-All other terms of 1031 exchange must be the same.

That being said, you can use 10% down financing for a secondary home allowing me to purchase a higher priced property and hopefully that generates more income.

@Joshua Strickland yeah you are right, I've found a DSCR loan / company that will send 85% LTV, but not the 10%.  My big obstacle is that my balance sheet is complicated due to having multiple mortgages making it harder to obtain the 10% down .

Thanks for the insight everyone! Hoping I can figure it out

Financing Secondary Home Purchases. Who are you using?

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