- The Washington Times - Thursday, June 17, 2004

Q: My husband and I are purchasing a condo in our name, but it will be my mother’s primary residence. She has a lot of debt, and until her current condo sells, we cannot pay it all off.

We plan on refinancing the new condo in her name once she is settled.

The problem is that because we already have a mortgage in our name, the lender sees this as an investment property and is quoting a higher interest rate.

I disagree. We are not renting the property out. We are using it for my mother’s residence.

How do I get the lender to see this and lower the rate? Is there a way around this?

A: The property should be classified as a second home, not an investment property. I think your lender is incorrect.

Mortgage rates on second homes are no different from those on primary residences, while the rates are jacked up on properties purchased for rent. So it’s clearly in your best interest to find a lender who sees that the property is, indeed, a second home.

Thanks to the emergence of common-sense underwriting, the old “black-and-white” rules that dictated whether a property was designated as a primary residence, a second home or an investment property are largely ignored.

In order for a home to be considered a second home rather than an investment property, three criteria had to be met.

First, the owners of the property must occupy the property for at least 15 days per year.

Second, the owners cannot receive rental income.

Third, the property must be at least 50 miles from the primary residence and in an area that’s common for vacation homes.

Thankfully, these silly rules have given way to common sense. I made a loan a few years ago to a gentleman who purchased a row house in Richmond, Va., so that his three children would have a place to stay during college.

The borrower merely provided me with evidence that his children were enrolled in college in the area along with a statement of his intent, and we were finished.

Yours is a similar situation.

Lenders have every right to be suspicious, especially when it comes to the occupancy of the house. Mortgage fraud is rampant and difficult to control. It seems to me that you need to provide clear and honest evidence that clearly indicates what you will be doing.

Here are some suggestions off the top of my head:

Provide written statements about your plan.

Provide evidence that your mother is selling her current residence.

Keep your mother off the loan, but have her take title to the property with you.

Unless something looks funny, I would be surprised if a competent mortgage underwriter wouldn’t consider yours to be a purchase of a second home.

I had a client a few years back who was purchasing his next-door neighbor’s house. He tried to convince me that the property should be considered a second home rather than an investment because, he said, his wife would be living in one house, and he would live in the other.

Nope. That didn’t work. But if the circumstances make sense, your lender should treat the acquisition as a second home so you are able to get the better interest rate.

Henry Savage is president of PMC Mortgage Corp. in Alexandria. Contact him by e-mail (henrysavage@pmcmortgage.com).

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