Profile picture for lme4

Took over title, now looking for lender to assume loan

Hello. We took over title of our parents prop over a year ago. We've used it largely as a write off, claiming it as a rental. Now, we need to get the loan under our name (title was put in our name 6 months ago). We have a history of making payments for over two years and good credit. However, I don't want a "rental" rate. I want a second home rate. I am concerned because tax return shows it as a rental home. Anyhow I am told my someone that a mortgage broker can get it qualified as a second home, but I am wondering if that is true. I am inclined to go with a direct lender. Would prefer a large company that makes it easy to fed-ex docs, etc. I won't deal with a one-man-band who is in a different time zone and will tell me one thing, "hey no prob, we can do it," and then not be able to deliver or who bumps me to higher rate. Any suggestions? 
  • October 19 2013 - US
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Answers (8)

Best Answer

If the current loan is an FHA loan, it is assumable. Some Fannie Mae/Freddie Mac loans are assumable as well. Contact a Real Estate Attorney for that process. 

The way you've described the property, it can be listed as a second home, but you do lose the tax write off benefits that you get as an investment property. You may want to weigh in the differences between the benefit of tax write offs on a rental home vs a second home.

The issue of investment or second home will be more dependent on the equity in the property. As an investment property, you need at least 20% equity in it just to get the loan. As a second home, 10%, but will have to pay mortgage insurance, which may offset a new investment property rate.

If the property does have equity, it's preferable that you have at least 25% equity in it to avoid the points associated with having an investment property. Typically, a bank will charge 1.75% in points for more than 25% equity and 3% in points if 20-24.99% equity. 

There are 2 ways to handle points: One way is to finance the points (part or all) into the rate. The rate is increased to the point where the commission to the loan officer is enough to pay the points. The law no longer allows the loan officer to keep those points. 

The other way is to finance the points into the loan amount. Increasing the loan amount to cover costs increases the payments (around $4-$5 per thousand financed).

When to refinance: You may have to wait until the title is in your name for a while (called seasoning of title). Check with banks to find out their seasoning requirements.
  • October 21 2013
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Thanks for the clarification regarding rental. I think you are still going to have a problem proving it is a second home because of the way you file taxes. However, tax season is right around the corner. Perhaps you can change the way you report the property on your returns.

By the way, you didn't get any responses saying "hey no prob, we can do it," and that's part of what you didn't want to hear. What you did get is some decent responses. Suggestion: Find a lender that will wrap their head around your scenario and will bring it to their underwriter to clarify that it will work before going through the entire process.
  • October 20 2013
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Profile picture for lme4
The property is a state away, in a vacation area. We occupy it during the summer, leave it mostly vacant fall and spring, and rent it during winter. Our taxes show it as a rental loss because we truly are not making a profit-- no fraud there. Yet, I want an owner/second home rate because it's furnished like our home and we use it more than renters. Sorry I didn't clarify that. I also thought there was a law about being able to assume a loan if the parent was incapacitated.
  • October 19 2013
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IF your parents still live in the property you should be able to obtain financing at owner occupant rates.  Most lenders have an overlay to that Fannie Mae Guideline but Fannie Mae has no issue with a child assisting an elderly parent with housing.

If your parents don't live in the property and you are in fact collecting rent, it is an investment property.
  • October 19 2013
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Profile picture for wetdawgs
Are you suggesting that you are occupying the property for a portion of the year?   What portion of the year would that be?  Do you rent it out part time to vacationers?    (If you are renting it basically full time, then it is not a second home). 

 Is the residence is far enough from  your primary home to justify it as a "second home"?    Barb has given good guidance on that one.
  • October 19 2013
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We suggest that you talk to a loan officer at two or three local banks regarding rate, etc.  When you select a lender, your loan officer will look over your tax returns among other documents.
  • October 19 2013
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That's going to be a stretch to say it's being converted from a rental to a second home. Right off the bat, you will have a red flag in terms of occupancy questions by the underwriter. I think you will have to accept the Investment property rate, unless you have something compelling to prove that it's now a second home. Second homes are typically significantly remote (50 miles+) from your primary residence, or a condo in a city used for commuting ease, homes in known vacation areas, cabins in the mountain, etc.

Do not listen to anyone who says "most people never get caught and get fined or go to jail."  Make no mistake about it, occupancy fraud is on lender's short list in terms of what they watch now.
  • October 19 2013
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Profile picture for Outer Banks N C
The title mentioned assuming a loan, but then not again. You likely won't be able to assume the loan, you need a new one and a loan officer or mortgage broker can do that. Getting it as a 2nd home when you in fact are renting it is a push, since you would be committing fraud. But go for it, most people never get caught and get fined or go to jail.


  • October 19 2013
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