Want to Rent Your Vacation Home? Beware These Lender Rules

by Leisel L. Taylor

Primary Residence Loans

These loans are the most favorable, and you’ll get the lowest possible mortgage rates. These loans require you to move into the home within 60 days of closing and live in it for at least one year. After that, you’re free to rent out the home.

Second-Home Loans

These loans have the same rates as primary residences, so your rate will be the lowest it can be, but down payments must be larger — most lenders require 20 percent down. You qualify for the loan using your full primary residence housing cost plus your full second home cost. You can use the home for family and friends, but lenders won’t let you rent the home.

Non-Owner Occupied Loans

Also called rental property loans, these loans offer rates .25 percent to .375 percent higher than primary-residence or second-home rates, and down payment requirements typically start at 30 percent. Your lender will let you know if you can use the rental income to qualify. These loans allow you to rent the home and use it when it’s not rented.

So, if you plan to afford a vacation home by renting it out, you can’t finance it with a second-home loan. But you’ll need to review non-owner-occupied loan options with your lender to meet the objective of using and renting a home that’s not your primary residence.

As noted above, this means you’ll need to put down a larger down payment, and your rate will be slightly higher. But it’s a small price to pay for the flexibility of earning income from a home that you also use for your own enjoyment.