Applying for a vacation home or 2nd home loan

[David Ordonez]

What are some of the consequences if you decide to rent your vacation home as soon as you close the deal. I understand the lender strictly specify you can not rent your vacation home. Will I get in trouble if I rent the property or at least put it on AIRBNB?

[Andrew Postell]

@David Ordonez this topic has a LOT of wrong information and it has a VERY specific answer.  Now this answer does depend on the loan type that you used.  Most of the loans for these home types are from Fannie Mae and Freddie Mac (if you recognize those names).  So here is the actual verbiage from Fannie Mae:

Second Home Requirements

• must be occupied by the borrower for some portion of the year
• is restricted to one-unit dwellings
• must be suitable for year-round occupancy
• the borrower must have exclusive control over the property
• must not be rental property or a timeshare arrangement
• cannot be subject to any agreements that give a management firm control over the occupancy of the

1. If the lender identifies rental income from the property, the loan is eligible for delivery as a second home as long as the income is not used for qualifying purposes, and all other requirements for second homes are met (including the occupancy requirement above). 

As you can see, YOU ARE ABSOLUTELY ALLOWED TO RENT YOUR PROPERTY.  But, as long as a management company does not control it.  That's the difference.  

Now, the tricky thing is that some banks don't even know this rule.  So they misspeak on it often.  AND It is entirely possible that a lender could have an "overlay" on this rule.  An overlay is an extra rule that a bank has put OVER the Fannie Mae loan guidelines.  Fannie does allow this.  If they have such a rule, THEN IT MUST BE IN WRITING in your loan documents that you signed at closing.  If there's nothing in writing, then you are free to do what is described above.  As a side bar, no lender is going to spend the time to audit your lease agreements....but we do want to obey the rules.  So rent it but without a management company.

And in case anyone needs the Freddie Mac guidelines on Second Homes...here it is:

To be eligible, second home Mortgages must:

■ Be secured by a 1-unit property owned by an individual who is also the Borrower,

occupied by the Borrower for some portion of the year and the property must be:

 In such a location as to function reasonably as a second home

 Suitable for year-round occupancy

 Available for the Borrower’s exclusive use and enjoyment

The property must not be:

■ Subject to any timesharing or other shared ownership arrangement

■ An ineligible property (e.g., a unit in a Condominium Hotel)

■ Subject to any rental pools or agreements that require the Borrower to rent the property, give a management company control over the occupancy of the property, or involve revenue sharing between any owners and the developer or another party

Hope this helps!  Thanks!