Is your client thinking of refinancing? If they rent out some or all of their home to short-term guests, they may need to jump through some extra hurdles to find a lender who will work with them.
The largest service that homeowners use to rent out their homes on a short-term basis is Airbnb, an online broker that receives a fee for each rental booked through its website. It collects fees on each transaction from both the guest and the homeowner. Other such services include Tripping, FlipKey and HomeAway.
Homeowners who use services like these to rent out some or all of their principal residence may be unknowingly re-classifying their home for mortgage purposes, as discussed in a recent Bankrate article.
Lenders charge higher mortgage interest rates and most require lower loan-to-value (LTV) ratios for investment properties — an unexpected problem for homeowners who view their home as a primary residence and not as an investment vehicle.
The rules for when a lender classifies a home as an investment property vary from lender to lender. For instance, a lender may classify your client’s home as an investment property if they rent it out for more than a certain number of days a year — or if they receive a certain amount of income from their short-term rental.
How to get clarity? Shop around with as many mortgage lenders as it takes to be approved at an acceptable rate.
Refinancers need to shop around
Many homeowners apply with a lender they are familiar with — like the one that originated their mortgage when they purchased their home. But they may not realize that this lender’s response to their mortgage inquiry isn’t the final say. In terms of property classifications, their rules may not align with other lenders.
Whether your client is seeking a purchase or refinance mortgage, they are best served by applying with at least three mortgage lenders. They can then compare the mortgage rates and terms offered by each lender to choose the best one. [See RPI Form 312]
It’s ideal to apply to these three lenders on the same day, since daily interest rate changes based on market fluctuations mean you can’t accurately compare mortgage offers made on different days.