Question: My husband and I are considering purchasing
a condo near our son's college. The lender we spoke
with offered us only the higher, investment property
rate. She gave us three reasons:
* First, our son doesn't have enough credit to be
on the title with his parents as co-signers.
* Second, she said that the property needs to be
in a resort area to be considered a second home.
* If the campus was located at the beach, she
says, we would qualify for the better rate. Third, the
campus is not far enough away which means the property
we want to buy is too close to our primary residence
to be considered a second home.
We have no intention of renting the property out. We
simply wish to hold the property for four years while
my son attends college. It seems to be a better
alternative to paying rent. I don't see why this
situation doesn't qualify for the better interest
rate. Any comments or help is appreciated.
Answer: I think your lender is wrong and I think
somebody has things mixed up. Let's review these three
reasons.
If you choose to buy a property for investment, as a
second home, or a primary resident, you have every
right to put your son on the title as a co-owner. He
does not need to be obligated on the loan, but you may
surely put his name, along with yours, as an owner of
the property.
Your lender was probably referring to an arrangement
where your son would take title and apply for the
mortgage as a primary occupant, with you and your
husband applying as non-occupant co-borrowers.
Such an arrangement would certainly remove any doubt
that the property is purchased as a primary residence.
However, the lender could very well be correct if your
son wouldn't be able to qualify for a mortgage if he
has little credit and income. Non-occupant co-signers
can loosen underwriting guidelines, but most lenders
want to see that the primary borrower has some ability
to repay the loan on his own.
Let's look at the second and third reasons. Your
lender is applying what I think are outdated
guidelines to differentiate an investment home and a
second home. Years ago, most lenders used a set of
criteria to make such a determination. Indeed, in
order for a house to be considered a second home it
had to be at least 50 miles from the primary residence
and located in an area that's typically visited for
vacations and holidays.
Thanks to the ever-evolving mortgage industry, most
lenders take more of a common sense approach to the
issue. In my experience, a borrower simply needs to
make a written statement of the intended use of the
property. A reasonable underwriter should examine the
file and see if the intent makes sense.
Your situation should certainly pass the test. A
property purchased for the use of a family member near
college seems to me as perfectly reasonable.
What might be considered unreasonable? I was
approached one time by a borrower who was buying his
neighbor's house across the street. He applied for the
lower rate that is allowed for second homes. When I
asked him on what basis he considers the purchase to
be a second home rather than a rental property, he
told me that he will be moving into the house and his
wife will be remaining in their current residence.
That one didn't pass muster. My advice for you would
be to draft a letter that explains your intent and put
your son on the title with you. If your lender still
won't give you the better rate, ask some trusted
sources for a recommendation for another lender or
mortgage broker. I'm sure you'll find plenty that
would be happy to make you a loan.
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