Second Home Classification

C

ChunkFinley

New member
I have two homes in relatively the same neighborhood. The smaller home that we lived in at one time was previously rented out. The tenants have moved, and it is vacant. I?m wondering if there is a legit/legal to refinance the home as a second property. I.e., keep it for X amount of months with no long term rental tenant, move back into it for X months, perhaps only AirBnB instead on a limited basis, etc.? Would appreciate any feedback.
 
You wouldn't be able to get a home in such a small radius classified as "secondary home" to a lender especially not a home that is smaller than your current home. Usually it would have to be something like 50 miles away from your current primary residence.
 
One look at your tax returns - which will be requested when you have a 2nd property - will dispel any notion of the property being a second home. The rental income will be the issue that tips this to an investment property. Your insurance on the home will also reflect the property as a rental.

Generally speaking 2nd homes must be a reasonable distance from your current property and in a "resort" setting. A home in Irvine with a small condo in Huntington Beach or San Clemente would fit the parameters. The case for a property being a 2nd home must be compelling. You must declare that the home is for your "exclusive use and enjoyment" (translation - if parents live in the other home, it's not exclusive for you to use, so it's an investment home) and that the property will not be rented out - period.

My .02c
 
On a 500k loan, a half percent higher interest on a rental property is $2500 annually. Not worth the headache, jumping through the loops, and lie to lender.

If there is a million $ loan on the property, you are rich enough and do not need the creativity around this topic...
 
Cornflakes said:
On a 500k loan, a half percent higher interest on a rental property is $2500 annually. Not worth the headache, jumping through the loops, and lie to lender.

If there is a million $ loan on the property, you are rich enough and do not need the creativity around this topic...
Click to expand...

Yup. There is a thread that I started that lying to a bank is not worth it.
 
Soylent Green Is People said:
If parents live in the other home, it's not exclusive for you to use, so it's an investment home
Click to expand...

I have lenders that are qualifying loans as "owner-occupied" and one of the criteria is a child getting a loan for a home for parents that could not otherwise qualify with their income. So in your example, we could do the loan with the same rate as owner-occupied.
 
Yes, as do I. This scenario is considered an owner occupied property with non-occupant co-borrowers - a "Blended Ratio" underwriting option. When at a "big bank" we did not have blended ratio options as the bank felt it was too high of a risk factor. Now that I'm at a mortgage banker, we can do these as either a purchase or as a refinance - providing the borrower doesn't show rental income on their returns for the property in question, or the property insurance with rental protections.

An Agency second home loan would have an "exclusive use and enjoyment" etc and other underwriting conditions to ensure the transaction is a true second residence.

My .02c
 
Soylent Green Is People said:
One look at your tax returns - which will be requested when you have a 2nd property - will dispel any notion of the property being a second home. The rental income will be the issue that tips this to an investment property. Your insurance on the home will also reflect the property as a rental.

Generally speaking 2nd homes must be a reasonable distance from your current property and in a "resort" setting. A home in Irvine with a small condo in Huntington Beach or San Clemente would fit the parameters. The case for a property being a 2nd home must be compelling. You must declare that the home is for your "exclusive use and enjoyment" (translation - if parents live in the other home, it's not exclusive for you to use, so it's an investment home) and that the property will not be rented out - period.

My .02c
Click to expand...

This pretty much sums it up--if you're not really using this as a second home, it's not likely to fly under the radar given how close it is to your home and your tax returns.

That said, if you intend only to have incidental seasonal rentals--say 90 days out of the year--and you intend to occupy the home part of the year, then you may have that small incidental level of rental income and still call it a second home. In this case though with the other home being in the same neighborhood, the lender is not going to see that as as second home. If it was say in a nicer suburb of the same city that might fly, but not the same neighborhood.
 
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