The Accunet Mortgage Show (10/18/2020) Episode

In this week’s episode, Brian and David discuss options for making a vacation home in a warm climate a reality- even if payments seem high! And Brian helps an aspiring lawyer secure the condo of her dreams.

This week’s highlights:

  • Brian talks about the value of vacation homes
  • Brian and David give the rundown on rental properties
  • Brian details a controversial condo

Upsides and downsides to vacation homes

Option #1: Financing as a second home

This week, Brian had his mind on vacation homes in warmer climates- just as many of his clients have as the Wisconsin weather grows colder. And with more people working from home now, being able to flee south for a few months is more attainable than ever!

Brian spoke about a long-time client who was refinancing his primary residence, with hopes to buy a place down south.

The client found a property worth about $1 million. David crunched the numbers and determined that the client’s probable payment on this house (including taxes and association dues for a gated community) would come out to be a whopping $5,000/month!

After hearing that, the client decided he wanted to try renting out the property to make his mortgage.
Brian said that Fannie Mae updated their rulebook for rental properties in 2019: it is ok to rent your vacation home or finance it as a second home, but you as the owner must occupy it some of the year.

So, Brian’s client would live at the property for 5 weeks out of the year and rent it to help pay for the steep costs of about $4,000/week.

That all sounded peachy, but Brian told the client he needed to dial back his purchase expectations because, on the jumbo loan of $750,000 that he would require for purchase, the rules say he could not finance it as a second home. 

The client’s first option to buy this vacation home would be to put down $681,000 and then just finance the remainder. The downside to this option would be that he could never receive any rental income to help make his payments.

    Contact a home loan expert to get a jump on buying a vacation home.

    Option #2: Non Owner-Occupied Property

    Brian said he did have an alternative: the client could officially purchase that property as a rental property. It would become a non-owner occupied property, which David notes can be the riskiest type of mortgage.

    Brian said if the client chose the first option- as a primary purchase- he could get the client the vacation home at a 2.875% interest rate with a loan amount of $510,000. But, if he needed the rental income, the rate goes up to 3.5%.
    Brian noted that a rate of 3.5% would have been a sweet deal in a pre-COVID world, and encouraged the client to take the “higher” rate and use the rental income!

    David noted that even if someone were to buy a rental property, that property does not even have to be physically rented out in order to use the rental income. Simply ask your home appraiser the theoretical rent the property would fetch by performing a fair market rental analysis, and use that figure to determine your adjusted monthly payments.

    A condo conundrum

    The third client story this week is about a law school student who wants to buy a condo in downtown Milwaukee- but she will not be starting her job in the city until a year from now!

    She is currently finishing up school in Madison, and the student’s mother is a long-time client. When the aspiring lawyer found a condo she liked, she called Accunet and asked if it was possible to secure the place this far in advance. Her mother wanted to put 5% down on the property, but Brian dissuaded her: if you put a lower payment, you’ll be subject to a full review, and the property will methodically document things such as full budget and hyper-granular details about insurance that can open a whole can of worms for potential red tape with a full year to dwell on it. Additionally, 5% down is not a very attractive offer to the seller.

    Brian suggested they make it a non-owner-occupied transaction. In order for the condo to be considered the student’s primary residence, it would need to be the place she lays her head at night within 60 calendar days of closing.
    The earliest date that she can occupy that property would be in late April, during the last days of classes in Madison.

    Brian instructed her to close in February to make that window, and is helping her work with an attorney to make her offer now and close in late winter. Brian will take care of the financing and appraisal contingencies within normal timing, and her dream condo close to her new firm will be secured!

    The only drawback is that she will have to give the seller’s full asking price- but that is not much of a price to pay to have him hold the place for 12 whole months!

    Also in the market for a condo? Read Accunet’s condo-buying tips!