Question: I have an interesting problem. I am a retired Air Force General and have been working for a large corporation in Washington, D.C. My wife and I have sold our home in Northern Virginia and are moving back to our home state of North Carolina. I have one more year on my employment contract and I plan on living in Virginia during the week and flying to North Carolina on the weekends. We have already purchased a house in North Carolina as our primary residence.
Instead of renting an apartment in Virginia, I decided to purchase a condominium. My lender has told me that I have to pay a higher interest rate because they consider the condo to be a rental investment property, not a second home. I'll admit that I hope to sell the property for a profit but I'm certainly not going to rent it for at least a year because I need a place to stay during the week. It seems they don't believe me. What do I need to do to convince them that I won't be renting out the unit?
Answer: Lenders are suspicious by nature - and for good reason. Prospective homebuyers are constantly trying to pass off a home purchase as a primary residence or second home when in fact it will be rented.
It seems that you are a victim of overzealous suspicion by the lender. In the old days, in order to qualify for a second home mortgage, the property needed to demonstrate certain characteristics to be deemed a second home. For example, the property needed to be in a traditional vacation area, such as the beach.
Thankfully, lenders now take a more common-sense approach. A good underwriter will examine the file and determine whether the stated motive of the buyer is logical. For example, I once had a client who was under contract to purchase the house across the street from his primary residence. He and the seller were long time friends and no real estate agents were used. In fact, their written contract consisted of nothing but a one sentence, handwritten scrawl that identified the buyer, seller and purchase price.
So I go over to this guy's house to take the loan application and he tries to convince me that this property is will be used as a 2nd home. He tells me that his wife of 35 years will be the occupant. No, they're not divorced or separated.
I then bring to his attention that the loan application has a section that identifies the property as either a primary residence, a second home, or an investment property. I also tell him that it's a violation of federal law to knowingly sign a loan application that contains false information.
As I suspected, he decided that he may rent the property after all and it would be wise to apply for an investment property mortgage.
Of course, his situation didn't make sense and wouldn't have passed muster in the underwriting department. Yours is a very different case. Here are the facts:
- You have identified your primary residence in North Carolina
- You have a verifiable job in Washington, D.C.
- You have explained to the lender your intentions to commute back home on the weekends.
All of it makes plenty of sense and it seems to me that you have run into a knucklehead underwriter. My advice is this: Ask to speak with the underwriting manager and tell them that you want him or her to fix the problem. If they don't, pull your loan and make application with a lender that knows what he's doing.