For our discussion today, we're going to use FNMA's (Federal National Mortgage Association or "Fannie Mae") guidelines which are considered the benchmark for conventional (non-government insured) mortgage qualifying standards.
Government-insured mortgage programs (FHA, VA, USDA) cannot be used for Second Homes or Investment Properties. Buyers using these programs must occupy as their Primary Residence.
FNMA's current Second Home standards are
- Reasonable distance from Primary Residence
(usually at least 50 miles)
- Occupied by borrower some portion of the year
- Restricted to 1-unit dwellings
(single-family home or individual condo unit)
- Suitable for year-round occupancy
- Borrower / owner has exclusive control over property
- NO rental or timeshare arrangements
- If a property management company is used, it cannot
control occupancy (be a rental agent)
Here's a chart showing the basic differences in
Second Home guidelines between the IRS and mortgage lenders:
Consult a licensed tax professional for detailed IRS guidelines)
Under either set of guidelines, if a property's use doesn't conform to being a Second Home, it defaults to rental or Investment Property status which is property purchased with the intent of producing cash flow and/or price appreciation.
Remember that loans for Investment Property carry
higher interest rates and require
higher down payments than loans for Second Homes.
Just because the IRS says something is OK for tax purposes, that doesn't mean lenders look at things the same way in terms of
At loan application a property's intended occupancy and use
are declared, becoming a material part of the signed application.
Misrepresenting a property's intended use when applying
for a loan i
s Mortgage Fraud, a violation of Federal law.
Many potential buyers are interested in Second Homes here in South Florida. It's important for them to understand how a property's use is viewed by lenders and what
financing options may be available to them.
Just as important is how the IRS handles the
taxable basis of their real estate. Once they have accurate information, buyers can make decisions that fit into their overall financial plans.
Even when they pay cash, buyers may want to take advantage of Delayed Financing or refinancing at some point after closing. If that's the case, this discussion also applies to them.
Call me when you first start working with new buyers...
...whether they're looking for a Primary Residence, Second Home, or Investment Property.
Well informed buyers, sellers, and Realtors
® help make our transactions so much smoother.