Short-Term Renting Can Affect Home Mortgage Refinancing Options
For some homeowners, refinancing as an Airbnb host can lead to confusion as banks try to parse whether the property is residential or commercial, reports the Wall Street Journal. Large bank institutions, such as Wells Fargo and Bank of America, are said to be scrutinizing refinance applications of customers who rent out rooms. Customers of the institutions have said their loan choices were more limited and came with higher interest rate quotes.
Rental income assumption “was wrong”
“Here’s a bank I’ve had a relationship with for 30 years,” said Brad Severtson, a 61-year-old Seattle resident who wanted to obtain a home-equity line of credit (HELOC) from Bank of America on his property in Seattle’s upscale Ballard neighborhood. Severtson had reportedly earned $30,000 in 2015, renting a backyard cottage through Airbnb. “The assumption to me was the more your income is, the less risk to them. That assumption was wrong,” he noted. Bank of America told the paper that HELOC refinancing isn’t available for investment property. A bank spokesman noted loan officers would flag a “material amount of commercial activity” as making a property an investment property and not a primary residence eligible for a HELOC.
Stephen Labovsky, a 72-year-old homeowner in San Francisco’s Glen Park, reportedly approached Wells Fargo to refinance his home that he and his wife rent portions of for much of the year. He told the news outlet the bank recommended he apply for a mortgage as though his home were an investment property, a route that would’ve increased his interest rate by as much as 0.5 percentage points. Greg Gwizdz, a national sales manager for Wells Fargo’s mortgage division, told the paper the bank currently has no policy on such short-term rentals but acknowledged that the boom of services like Airbnb might be causing confusion within the industry.
Commercial loan standards stricter
The article points out that lenders typically have stricter underwriting standards for second homes and investment properties. CoreLogic data showed that lenders financed only 72 percent of a home’s value and charged interest rates of 4.29 percent on average for investment properties. Data from Moody’s Investors Service and ABSNet Loan showed long-term cumulative losses for investment property loans was six percentage points higher than for owner-occupied mortgages. However, Airbnb has made the distinction between residential and commercial properties less clear, frustrating loan customers and challenging lenders’ traditional categories.