Second Home Rider

[Ben A]

What do I do if I want to rent out my second home with a rider? Is refinancing only the option?
If I leave as is, will I be able to claim the property as rental on tax return or is it a violation? (i.e., do banks and IRS go hand in hand on this?)

Thanks.

[Dion DePaoli]

The rider you signed says you will only use the home for personal/family use. You will not subject the home to any type of lease, rent, timeshare or alike. Technically speaking at any time if you put a renter in it, you are in violation of the covenants found in your rider. If the bank finds you in breach of the same, they can call the note due in full. Depending on how long you have owned the property they may attempt to pursue a charge of loan fraud against you as well.

You can contact your bank or loan servicer and explain you want to rent the property out and want relief of the second home covenants. You may want to both call and send a certified letter to them to CYA. Their lack of response is not justification for breach of the agreement, as that is not found in any of the documents you signed. So I would pursue the concept until you get an answer. This would be the least expensive way to amend the home's designation.

Your second line of attack would be to refinance the home with the proper designation. Be aware that the underwriting for investment properties is different than second homes and they will look for reserves for 6 months to be on hand. Either way (amend or refinance) ensure you get a document that says it is now an investment property so you cover yourself.

Banks and the IRS are two different set of rules. There are some rules around the IRS's view on the matter and one of the tax guys can answer your tax question around that topic.