Rules surrounding vacation rental financing

[James Palassis]

I am considering purchasing a short term rental in an area that would see traffic 10 months out of the year. My question involves the financing of the deal. I have the deed to my primary home. Am I able to finance the vacation rental as a primary residence? Are there rules stating I must live in the rental a minimum number of nights for it to be considered owner occupied or primary residence? This property will be less than an hour away from my primary residence, so if it is a matter of my having to stay at the vacation rental a certain number of nights per year, I have no problem doing that. Any advice would be greatly appreciated. 

[Chris Mason]

"Second Home" criteria, per Fannie Mae.

Two reasons this might be more appealing than buying it as an investment property:

• No Loan Level Pricing Adjustment, like there is for an investment property. 
• 90% LTV.

The intent is basically a vacation home. Your family goes skiing there two weeks a year, that sort of thing. It's got to pass a "common sense" test on that level. Some huge percentage of mortgage folks in the Bay Area, for example, own second homes in Lake Tahoe -- a beautiful area about a 4 hour drive away that you can ski during the winter, and water ski / camp / hike / etc during the summer. That's an example where it pretty clearly falls within the intent and letter of Fannie's guidelines. 

Urban area a 45 minute drive away? Probably not so much.

You can see from the little (1) footnote that Fannie is OK with rental income when your family isn't using it, we just can't use it as mortgage qualifying income the way we normally can with rental income. That, in part, is why Fannie Mae is ok with 90% LTV and a non-investor interest rate: your other sources of income must be able to support both your primary housing, and the second home, so it's not as risky as my trademarked little "unemployed spouses with minimal consumer debt in their name qualifying based purely on rental income" thing to let a married REI get from Fannie's normal cap of 10, to 20.