Read this if you rent your vacation home or are considering buying one.
When purchasing, a vacation homes has the same mortgage rate
and down payment rules as a primary residence, which are very attractive.
Many have discovered that the maintenance and upkeep on a vacation
home is just a “little bit” more than estimated.
So, after purchasing, some vacation homes are rented to offset expenses.
It may be to family and friends, or turned over to a rental agency.
As soon as that income is declared on Federal Tax returns, there is an
immediate change in the category of the type of home it now is.
Not in the governments eyes, but in FNMA and FHLMC (the Federal Lending Agencies) eyes.
The once vacation home with all the privileges of a primary residence, now
becomes an investment property, with new loan to home value and interest rate guidelines.
All of which are higher and more restrictive.
This is usually discovered when refinancing, either at the point of application, or by the underwriter,
who notices the rental income while reviewing the tax returns. (Federal tax returns will be asked for
if you own any properties in addition to your primary residence.)
How bad is the shock and change from a vacation home to a rental property?
It’s not the end of the world, but if you have primary mortgage rates on your mind, you will
become nauseous, as the pricing “bumps” will increase the mortgage rate around .375% with
a 1% loan origination fee.
If a former vacation home owner now investment home owner is considering the low mid-term
Adjustable Rate Mortgage, the ability to have “low or no” closing costs is significantly reduced, if
not eliminated. This will depend upon the loan size.

What to do? When purchasing, consider if you will rent your vacation home in the future.
If that is the case, and you will keep the home for more than 10 years, choose a fixed rate

If you will keep the property less than 10 years, then a mid-term ARM is worth considering,
as long as you remember that if you do rent and declare on your Federal Tax returns, your
property is an investment home.

What has been your experience? Leave a question or comment below.