Vacation Loan Advice

[Jesus Moreno]

Looking for help from The Vacation Rental folks. I recently went into contract on a vacation home that I obviously would like to use as an investment property, however when going through the verbal agreement phase of preparation of closing, I was asked if I would realize any income from the property. I said that I was thinking about making it a Short Term Rental (STR)… the lender said that if I do decide to use it in that way, that I would not be eligible for a vacation loan(10%) and that the loan needed to be changed to an investment property loan.

I've heard of many STR investors using the 10% loans, and it has been mentioned on the podcast several times. How are you guys getting around this? Are you listing on Airbnb and hoping the lender doesn't call the loan?

Second question many STR investors use the 10% loan but let their insurance company know the house will be a STR, does the lender and insurance company communicate with each other?

[John Underwood]

So the lender will see your commercial vacation rental insurance policy. They need to have this in file for their protection.  They are likely paying the bill via your escrow account.

If you tell them you are not going to rent it out when they ask to get the 10% down loan and then do it anyway you are committing mortgage fraud.

I've heard some mortgage companies are ok with you renting and getting an10% down 2nd home loan. This is a conversation you need to have early in the loan process.