The second-home loan that was not a second home
Ten percent down and a better rate, on a loan whose occupancy affidavit the buyer could not have signed honestly. The honest product cost more up front and less over thirty years.
The deal
A three bedroom on Lake Anna at $355,000. The buyer arrived holding a quote from their own bank: a second-home conventional loan, ten percent down, 6.75%, qualified against their W-2 income. Cheaper money and about $53,000 less cash at the table than anything we were going to offer.
The first question we ask is not about the property. It is what the calendar looks like. The answer here was that the house would be listed year-round, professionally managed, and used by the family for maybe two weeks in November.
The problem
That is not a second home. A second-home loan carries an occupancy affidavit. The borrower keeps the property available for their own use for part of the year, does not hand it to a management company under a rental agreement, and does not lean on the rental income to make the loan work. Sign that and then run the house as a full-time rental and you have misrepresented the loan.
People do it. It is the most common shortcut in this asset class, because the pricing gap is real and the enforcement is quiet. We will not assemble a file that way, for a reason that is practical as much as it is ethical: the affidavit is the lender's route to calling the loan, and the buyer carries that risk alone for thirty years while we carry none of it.
What we did
We priced the honest version and put the two side by side, in dollars, on one page.
- Second home: $35,500 down at 6.75%, qualified against personal income, title in the buyer's name, personal-use conditions attached to the loan for its full term.
- DSCR investment: $88,750 down at 7.375%, qualified against the property, title held by the LLC, no restriction on how the house is rented or who manages it.
- The gap up front is $53,250 in cash. The gap monthly is about $233 more in PITIA.
The buyer took the DSCR loan, for two reasons in their order rather than ours. The LLC mattered to them for liability reasons they had already worked through with an attorney. And their W-2 income was about to change in a way that would have made a debt-to-income qualification awkward within the year.
How it closed
Thirty-three days, with no conditions worth writing down. Credited income of $3,850 a month against a PITIA of $2,339 is a DSCR of 1.65, which is the sort of coverage that makes underwriting boring, and boring is the goal.
Worth saying plainly, because it cuts the other way just as often: for a buyer who genuinely will use a house half the season and rent it the rest, the second-home loan is the better product and we will tell you so, even though we make less on it. The test is not which loan is cheaper. It is which one describes what you are actually going to do.
The test is not which loan is cheaper. It is which one describes what you are actually going to do with the house.
