In an earlier posting, we defined the three types of occupancy – Primary; Second Home; and Investment. In this installment, we look at the second type of occupancy – Second Home.
Second Home occupancy is considered an owner-occupied property; however, it is not the borrower’s primary residence. A second home is generally thought of as being in a vacation or resort type area – near the beach or the mountains for example. However, a secondary residence can also occur when the borrower needs a residence that is due to work requirements. An example of this can be when someone is employed as an airline pilot or flight attendant.
Pilots and flight attendants often have pre-planned routes which require them to stay overnight in a city which is not their home. Rather than renting a hotel room, sometimes people in these professions will purchase a property for its convenience. This is also an acceptable second home situation. However, when this occurs, it will be necessary for the borrower to document why they are needing a second home. This can occur in other professions as well, not just the airline industry.
One of the dangers of declaring a second home is the potential for it to be used as investment (rental) property. If the borrower plans to rent the property out more than 2 weeks (14 days) per year, it is no longer a second home, but an investment property. Mortgage lenders can and do follow up on this type of situation as part of their normal quality control. If it is found that a property declared as a second home is being used as rental property, there can be many consequences including a request to pay down the loan amount; an adjustment of interest rate to properly reflect the risk on the lender’s part; acceleration of the debt (foreclosure); even civil and/or criminal charges against the parties that are involved. Obviously, this is something to be avoided.
When purchasing or refinancing a second home, it is important to work with a knowledgeable professional. If you have further question, please contact one of these professionals, a Loan Officer at Googain, today.