financing a beach home or rental

When you buy and hold an investment property and seek long term financing, your bank will request a litany of information about you, your credit and most anything that has to do with your finances. The bank also wants to look at the property as well. And when deciding whether or not to refinance your current real estate holdings, how does the bank view your beach house?

Financing options for non-owner occupied properties are many but such loans will require more down payment from you or more equity in the course of refinancing. Interest rates will be slightly higher as well. However, some lenders will treat vacation homes a little better than rentals with regard to rates and equity requirements. In fact, some lenders will treat a second home in the very same manner as a loan for a primary residence. So why don’t you just tell the bank that your rental is also your second home so you can get a better deal?

Banks assign various levels of risk and know that should a borrower fall in to financial straits and has trouble making house payments, it’s the rental property that will go first. The vacation home? No longer needed. That’s why mortgages for a primary residence have better terms than those for a rental. And when reviewing a refinance application for a vacation home, there is a guideline the lender follows when deciding whether or not to give the property a true second home status and the more favorable terms along with it.

When the bank looks at your federal income tax returns, specifically Schedule E, if there is any rental income listed on the form, the property no longer qualifies as a second home. If any second home or beach home is rented out for more than two weeks in any year, the property is considered a rental and does not qualify as a second home. Second homes, beach houses, rental properties…they may all seem similar, but in a lender’s eyes they’re very different.