What is a second home? The definition seems obvious. But many Park Cities homebuyers are surprised to make it partially through the mortgage process, only to be denied because their home does not meet the requirements for second homes.
Before you make an offer on a second home, be sure that you know the rules that all mortgage lenders must follow. According to Marcus McCue, Senior Vice President, Guardian Mortgage Company, you need to ask yourself six questions before applying for a loan.
- Is my second home located a reasonable distance away from my current home? The definition of “reasonable distance” is open to interpretation. For example, if the property is a lake house or beach house, the property may be located less than an hour away from the borrower’s primary residence and still be acceptable to the underwriter as a second home. However, if you live in the Park Cities and are buying a second home in McKinney, the originator or their underwriter is likely to deny the loan as a second home and will require the loan to be processed and closed as an investment property.
- Will I occupy the home for some portion of the year? This could be seasonal for those properties located in ski or beach areas, numerous times per month like weekend visits to a lake house, or periodically during the year like a home grandparents purchase near their grandchildren.
- Are there multiple units to my second home? A duplex or other multi-unit property is categorized an investment property by conventional guidelines, even if you live in it part of the year. Because you would occupy only one of those units – with the other units leased to tenants – the financing on the entire property would be categorized as an investment.
- Can I live here year-round? A property that is only functional in one season, like a hunting cabin with no heat, will be denied.
- Do I have exclusive control of the property? Timeshare or split ownership situations do not qualify for conventional lending.
- Is it a rental property or timeshare arrangement? The property cannot be subject to any agreements that give a management firm control over the occupancy of the property.
These six qualifications typically raise a few questions. For example, does this mean you can never rent out your beach house?
The issue here is intent. The intent at the time of closing needs to be that the property will be owner-occupied and not rented. If the property is rented after closing or years later, but the borrower occupies the property themselves at some time of each year, then the loan is not fraudulent.
Similarly, many Park Cities borrowers ask about buying a house for their child to live in during college. In this scenario, the property is an investment property and not a second home. Your children are not you, so if they occupy the property, it is not owner-occupied. There are very limited and specific scenarios where properties can be financed for family members as owner-occupied properties, but these are limited to disabled children and elderly parent situations.
If a parent is buying a property in a college town because their child is attending the college, their intent needs to be that they will be occupying this property themselves when they visit the child in college. It does not qualify if the child will live as the occupant, and parents will simply have a room to stay in during visits.
If you’ve determined that your home is not a second home, what are your financing options? Homes can be financed as a primary residence, second home or investment property. If the home is not your primary residence or second home, the investment property scenario is your only option. Investment properties generally require more of a down payment and do not qualify for the same tax benefits as an owner-occupied home.
If you have additional questions about your particular situation, feel free to contact Guardian Mortgage at 972-248-4663, firstname.lastname@example.org or on Facebook.
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Guardian Mortgage Company has been in the mortgage lending and servicing business in North Texas and Southeastern Michigan since 1965.