I learned a lot when my wife and I recently decided to buy a vacation/retirement home. I learned that in a really old house bedrooms don't necessary have to closets to be considered bedrooms - since the clothes hanger wasn't in common use until after 1900. I learned that you need to really aim for a good basement in Newport County, in RI - they are few and far between and flooding is common. I also learned that KJ's Pub near first beach in Newport has a terrific wing special ($0.30 cents a wing and it's a good size wing).
Finally, I learned that mortgage lenders really, really confuse me. Well, to be accurate, they've always confused me. You don't have to go too much further than the sub-prime crisis to have that point drilled home. However, one interaction with a mortgage lender in particular left me more confused than that mess.
The lender asked what our intentions were with the house. Unfortunately, that's been a very murky question for us. Understandably mortgage lenders don't like to deal with uncertain situations. It's simply not worth the risk. We told them that we'd love to move into the home immediately at closing, but due to my wife's military status (and various accompanying AWOL laws) it might not be possible to get a timely transfer. So then the lender asked if it would be a vacation home or if we intended to rent it out. That's a fair question. I tend to think a fair answer would have "yes" as it isn't necessarily an either/or case - especially in a well-known vacation area. However, I needed to give a more firm answer.
The lender then offered an explanation. If it is a 2nd home or a vacation home, he can provide me with a lower interest rate. If we intend to rent it out, it would be classified as an investment property and the interest rate would be higher. Huh?
Maybe it's just me, but I think that best interest rates should go those situations with the least chance of defaulting. That would seem to make sense, right? So if someone were to carry a second mortgage burden, that gets a favorable rate. However, if the same person were to rent out the property and brings in income to offset the cost of the mortgage, that raises a red flag and triggers a higher rate. If it were me lending my money, I'd be much more worried about the person without income from the property defaulting on the loan.
Perhaps a reader can help me understand this logic in the comments, because I can't make sense of it.
In the meantime, I'm going to bask in the fact that I can get free credit scores from Credit Sesame. It's one less thing to worry about.
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