Profile picture for SnowDesert

About higher mortgage rates on a second home

Hi, I'm planning to purchase a second home in AZ and would like to lease it out. I understand there is a point premium added to your mortgage and also you need to put down >25%. If I don't lease it out at the time of applying for the mortgage and use the property as my second home, can I get the standard loan w/out the higher rates? What if later on I decide to lease it, what happens to my locked in rate? Thx.
  • January 06 2011 - US
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Answers (11)

Profile picture for freespirit27284
I bought my second home without any plans to rent it out.  Rates and costs were better that way.  In a year, i changed my mind and decided to rent it out.  I already had the mortgage, there was nothing to stop me from changing my mind.  After you have a mortgage and you are paying it off and current on your payments, there is no reason for the mortgage company to ask you anything else.  You have every right to change your mind and rent out the unit.  Hope this helps.
  • April 09 2014
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  • January 06 2011
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Snow, the lender doesn't decide the occupancy.  You decide the occupancy on your application. 

Your situation is cut and dry.  You plan to lease the property.  You should apply as investment property.   If you apply as second home with intent to lease, you are committing loan fraud.
  • January 06 2011
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Profile picture for SnowDesert
Tara, yes, I live in PA, and the property is in AZ. ..is Chandler PA a resolt town? :)

I plan to have the house managed by a property manager, and it will be leased on a per year lease.

I currently don't own another property other than the house I live in now.

Now, let's say I provide all this info to the lender and the lender decides that it's a second home. Can they retract later after the loan has been approved, and say to me that it's not a second home, and I get penalized later on?
  • January 06 2011
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The truth is, second homes are a greater risk to a lender.  A second home is feasible, if it is located in a "resort area" such as a beach or if the borrower is going to occupy it for good amount of time for a valid reason.  The reason to occupy a second home must make sense.  If you buy in a resort area and plan to rent it out for any or part of the time, lenders would NOT accept this as a second home.  It would be considered investment property.

 A valid reason to purchase a second home would be if you actually worked part of the year at that location.  Another valid reason would be if it was close to other family members who may need your assistance due to an illness.  If it is not a resort area, owning a second home must make sense. If you own other rental property, buying a second home could be called into question altogether. 
 
By the guidelines, the property must be over 60 miles from you present home or be in a designated resort area.  However recently, our investors are digging in more deeply.     

  

  • January 06 2011
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You can consider it a "second home" if it's primary use is as a second home for at least 180 days. After that, you are free to rent it out. However, if your intention at the time of purchasing is to rent it out, then it is an investment property. If you haven't made up your mind and renting it out is just an option down the road, then I recommend financing it as a second home to save yourself on the down payment, rate, and fees. 
  • January 06 2011
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You are purchasing this property to rent out, correct?  Then it's an investment property.  Your other questions you asked answered this one.  Put at least 25% down to attain the best rates.
  • January 06 2011
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Take a look at this document for Second Home Rider.

If you are already considering the future possibility of leasing the property, you should be applying as an investment property.
  • January 06 2011
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Profile picture for Texas Banker
What you are describing, is an investment property.

25% down will give you the best pricing in this type of financing.
  • January 06 2011
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You can purchase a home as a second home with 20% down, rates and fees are about the same as owner occupied.  You would need to own the property for 180 days before you could convert it into a rental property.  If you decide to lease the property after six months your rate stays the same.  If you decide to lease the property prior to the sixth months.  It would be considered occupancy fraud and if your lender finds out, they can call your note do and if you can't pay the full amount they can foreclose.  If you are looking to purchase a rental property with no money down I can point you in the right direction.  If I have missed a part of your question feel free to contact me for further explanation.  Best of luck to you!  
  • January 06 2011
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It would need to be switched back to an investment property if you decide to lease it prior to closing.  The problem you are going to run into is the lender will be able to call your loan if you do this loan as a second home and it you wind up using it as an investment property(Fraud for Housing).  They'll probably do a random check at the house to see who is living there.  I'd be very careful about claiming this house as a second home if you know you are going to rent it out.

  • January 06 2011
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