Blake Kleckner (BlakeK)
#6 ranked lender in California - 244 contributions
There are 2 primary differences between a 2nd home and an investment property from a loan standpoint. First, lenders won't loan on a 2nd home purchase without at least a 30% down payment. Second, there is a 1.75% cost adjustment to the loan, which, if the condo is $300,000, amounts to $5,250 additional cost for the loan. This is a Fanni/Freddie guideline adjustment and all lenders abide by it if they want to have a chance to sell their loans to Fannie or Freddie. If your new home is far enough away from your primary residence, which I believe is 50 miles, then it can be considered a 2nd home as long as you don't charge rent. Of course, if it's a 2nd home you will be responsible for the payments and they will cause your debt-to-income ratio to increase quite dramatically, possibly resulting in you not being able to qualify for the loan depending upon your financial situation. On the other hand, if you rent the condo to your daughter, it will be considered an investment property subject to the sizeable down payment and cost adjustment explained above. Then you will have to show the rental income on your tax return which will be used to offset the monthly payment, making it easier for you to qualify for the loan. Unfortunately, you can't have it both ways--legally. If you try to show it as a 2nd home and have your daughter make the payments without showing them as income, not only will you put yourself in jeopardy with the lender if it finds out you purchased the home for investment purposes, but also with the IRS. Not a good idea. Give me a call 16/7, or email me, and I'll be happy to discuss the alternatives with you. To learn more about me and our mortgage brokerage, click on my picture. When the next page pops up, click on "Website" and you will be redirected to ours. We work exclusively in CA and get loans done fast, typically in less than 30 days, at low interest rates and costs. Representing 39 quality lenders that offer more than 1,000 loan programs, we definitely have something for everybody.