Intention to rent Investment Property. Second Home loan status?

Question

I want to apply for a conventional loan on a duplex out of state. Both units are currently rented and I intend to keep renting them. A mortgage broker said one of his underwriters may approve a loan as "second home" with 10% down (versus traditional 20% for an investment property loans). Is that a violation of any laws/codes to have a "second home" loan on a property that is actually an investment property? What are the chances of running into troubles down the road? What are the downsides of doing so? Can tax deductions be exactly same for both scenarios?

I won't be under an LLC. Insurance would be for "investment property". It would be managed by a PM company.

I won't be under an LLC.  Insurance would be for "investment property". It would be managed by a PM company.

Chris Mason · Answer

Congratulate the MLO on getting his license, and offer him a towel for the slight wetness behind his ears. :)

Basically I tell folks no 12 month leases, and you've got to go there to vacation/party once a year, but you can rent it out to other families partying/vacationing if you wish the rest of the year. This isn't at all a new concept (think of old movies where WASPs "summer in the Hamptons"), airbnb just made it a website.

Melvin List · Answer

@Stan Chigintsev yes. If your intentions are to keep it rented then it is an investment property not a second home.

Melvin List · Answer

@Stan Chigintsev mortgage fraud.

Natalie Novak · Answer

I’d also be interested in this answer. Lender is telling me the interest rate as a second home is 4.75% , but on an investment property it would be 5.75.

Aaron K. · Answer

I think that the lender is the one responsible for that, as long as they are aware that it is an investment it should be fine.  My guess is that they looked at your current income and decided that you didn't need the rental income from the duplex to qualify for the loan and had a better product.

Stan C. · Answer

I see. Thanks, Chris. Well, there will be a management company, it's a duplex, leases will be 1 year. A no-go. I'm doing 25% down although it's very hard for me financially.

Stan C. · Answer

Well, on the same note but different subject. An insurance broker offered me a HO3 policy on a non-owner occupied out of state duplex. I can't find any confirmations online that HO3 is allowed in place of DP3. Everything I read says non-owner occupied properties must be insured with DP3.  Both the morgtage broker and the insurance brokerage represent big companies and are reputable. How is that possible to get such questionable suggestions from reputable professionals???

Or, is the HO3 allowed on non-owner occupied?

Stan C. · Answer

@Melvin List, are you certain of that. Even if underwriter says "OK"?

Stan C. · Answer

Thank you Aaron Klatt. Does anybody else have am opinion maybe? What about tge IRS and taxes implications?

Intention to rent Investment Property. Second Home loan status?

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