New to str, is second home/vacation home 10% down still an option?

Question

Evening all.

Apologies for the basic post. Reading and researching as much as I can on str (reading Averys book.) Posts here, podcasts...alot of reference to vacation home 10% down loans. My local lender does not seem familiar. Is this still an option or have laws changed?

Appreciate all the knowledge shared here!

Andy

Kevin Luttrell · Answer

Fannie Mae expressly permits renting out a property secured with 2nd home financing. There is no mortgage fraud. Only stipulations are that you occupy the property for "some portion of the year" and that it not be controlled by a management company. And you can't use the rental income for qualifying.

https://selling-guide.fanniema...

Like Ryan mentioned, Fannie/Freddie recently increased their LLPAs substantially for 2nd home loans so the rates and fees are substantially higher than they used to be. Pricing is now in-line with investment property pricing, so there is no longer a benefit to using 2nd home financing except to do 10% down (vs 15% down for investment property)

This is for normal Conventional financing. Small community banks, credit unions and other lenders who don't sell their loans in the secondary market may have different guidelines.

Ryan Moyer · Answer

Still an option, just less common and also more expensive than before.

Sarah Kensinger · Answer

Yes, this is very much still an option! Just use it for at least 14 days, and it can't be within a certain mileage of another home you own. The Mortgage Shop in TN did a short YouTube video with Tony and Sarah Robinson that was very informative! I know so many people that got into the STR space by utilizing a 2nd home loan! Some people do it more than once, so long as the home is different and not near another home you own. Find a lender that is knowledgeable in STR, and they can help you with not only the laws but your situation, not every lender understands what is or isn't allowed with STR.

Kevin Luttrell · Answer

That's interesting. My 2nd home mortgage did not include that and I have not worked for a mortgage company that included it.

I'm not surprised on the 3 banks and 3 credit unions - they can have guidelines that differ greatly from Fannie/Freddie even when they say they're originating a Conventional Fannie/Freddie loan.

Also, I know many in the industry who have no idea Fannie permits rental income for 2nd homes. Most loan officers are trained to think that 2nd home loans are pretty much only for vacation properties, and if you plan to rent it at all then it's an investment property. So if you speak with a less experienced loan agent, you may get an incorrect answer on this (and they will surely be very confident in their incorrect answer).

In any case, it would be wise to tackle this up-front like Michael did rather than assume you're good. Try working with a direct lender with no overlays and/or an experienced loan agent who knows their stuff.

Andrew Steffens · Answer

We have recently had clients purchase homes in FL with 10% down second home financing.  Shop around rates and terms (even how often you can rent it) vary greatly by lender.

V.G Jason · Answer

If you're buying it as a second home, but using it as a STR be careful with mortgage fraud.

Having a family friend of ours get a due on sale for their house in the smokies with the same intent. Seeing a lot of this investigating for mortgage fraud now happening with rates higher and banks looking to make money.

Ricardo Hidalgo · Answer

Due to higher rates and risk you may have to put more down at the moment and to cash flow unless it is a value add. I think you could get away with 15-20% on a townhome or single family home on the beach. Reserves matter too and cashflow of other properties. I would not advise going low leverage with changing values.

January Johnson · Answer

January Johnson from Avery's team here....It is not an option on the Emerald Coast if you want to buy a condo.  Those require 25% down and no vacation/second home loan.

New to str, is second home/vacation home 10% down still an option?

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