First Time Financing Fiasco
Hello Everyone,
I have a theoreticall question for you...
If I go to a bank and get a 2nd Home(Vacation Home) mortgate, The loan terms are Really good. If I go to the SAME place and tell them that I will be renting it out when I am not there, the Loan Terms switch over to an "Investment Loan".. and the Loan Terms are basically out of my Reach. ( required Downpayment/ Interest Rates)
OK.. so the question is.
Do I ...
Option 1) Go to the bank.. get the loan as a 2nd home (nice Terms) .. and THEN Rent it out. I mean, Even if I tell them at this point its not like they will Call the loan... Right?
OR...
Option 2) Bite the bullet and get an Investment loan. Which basically means I have to find OWNER financing, or to simply wait to save money.
Thanks for the help!!
[ Edited by John1212 on Date 05/28/2004 ]
If home is down the block from you no lender is going to give you second home loan. if it's over 50 miles from you then you can call it a second home with the better terms and the lender will never know. If you're making your payments on time they don't care.
One more thing, there are lenders out there that will do 100% financing on investment property. Some will actualy do 100% stated if your credit is good enough but the 2nd mortgage will have a higher interest rate but it's out there.
Sounds like you plan to use this as a vacation home, at least part of the time, so you can legally and ethically get the 2nd home loan. You are allowed to rent out a 2nd home, though the IRS has some things to say on how often and how you treat the income. Banks know that many vacation homes are rented out periodically. Also, make sure your insurance covers rentals. I have a cabin and I switched the policy to an investment property to cover any problems caused by renters.
Once you close, you can determine the best way to hold (trust, LLC, wife's name) and treat the income. You can call it a 2nd home on your taxes and declare the income, or you can call it a rental property and write off your visits and maintenance/upgrades. It really depends on how much it will be rented and how much income there is. Check with your accountant.
Peter
Don't know that I agree with Dlove here. While in practice what he says may be true, there's a question of legality involved: if you lie on your loan application saying the loan is for an owner-occupied property when you know it's not, I believe that's a felony--fine and jail time possible.
If, as the others have pointed out, you really ARE going to use this a 2nd home, then you're not lying...
andy[ Edited by arytkatz on Date 05/28/2004 ]
The suggestion, and that's all it was that I heard is If you fully intent to occupy the place as your principal or 2nd home, and then some time later change your mind, that's not credit fraud.
My response was just pointing out the fact the lender won't know. I don't know of anyone who as every been convicted of a felony, paid a fine, or done any jail time doing this. Bottom line I know that people feel comfortable doing this and those that don't and that is what it boils down to. Say you have a house that is a second home and you decide to make it a rental are you going to call the bank and tell you need higher rates now that it is a rental.
I tend to agree with MoveItNow. It sounds like your intentions "may" be to rent it out only when you are not there. It does sound like you are purchasing this property as a vacation home. If you get the better loan, pay the entire mortgage payment, and at some later date decide that your situation has changed financially and you need to augment your income it order to pay all your financial obligations in a timely manner, you haven't done anything wrong. If, on the other hand, you know you are going to rent this property from "day one" then you must answer your own question pertaining to the morality of it. Good Luck.
Dave
[addsig]
I just got a loan because of it being my "second home". I live in wa state and bought in va. I used to attend college there and its a very nice place to live and invest. its possible i would move there in the future, but right now I am going to rent it out. the key word is going to be "intention". is it your "intention" to use it as a second home? there is no way a lender could prove it was not your
'intentions". you could of bought it as a second home and then decided you really dont want to live there after all. it was your "intention" to live there but not anymore. but also keep in mind if you keep buying "second homes" and renting them out thats when a lender can see a pattern of "intentions" and not give you a loan. like dlove said, if you make your payments on time then they wont care. thats why these rules are set up so people dont get over extended and cant make the payments and the lender has to foreclose. so just make your payments on time and make the lender rich so he wont care.