Fannie Mae's occupancy test
The home must be one you occupy and use as a second home for some portion of the year, a one-unit dwelling suitable for year-round occupancy, under your exclusive control, not primarily used or operated as a rental, not a timeshare, and not subject to an agreement that gives a management firm control over its occupancy. You state the occupancy in writing on the application. A home bought to be rented, with a manager running the calendar, is an investment property however the application is marked, and misstating occupancy is mortgage fraud.
Your income carries both homes
The lender qualifies you on your income against the payments on your primary residence, the second home and your other debts. Rental income from the second home is not used to qualify under Fannie Mae's rule, so the second home has to fit on your income alone. Fannie Mae requires the loan to go through Desktop Underwriter and to receive an approve and eligible recommendation; the lender then adds its own conditions on credit, reserves and equity.
The price adjustment and the lender's rules
A loan-level price adjustment applies to certain second-home loans, in addition to the others, and each lender decides how it passes that through. The reserves asked for after closing and the minimum credit score are the lender's rules within Fannie Mae's, and they differ from lender to lender; private mortgage insurance applies when the equity is below the program's line. None of it is priced here.
Insurance and the payment
The lender requires property insurance that meets Fannie Mae's coverage rules, and the premium sits inside the payment you are qualified on. Much of Pismo Beach and almost all of Cambria lie in the State's fire hazard zones, and the Cambria ZIP code is on the Department of Insurance's list of undermarketed areas. If the ordinary market declines the home, the FAIR Plan, the insurer of last resort, writes a limited fire policy, and a companion policy from another insurer covers the perils it does not; the lender's coverage requirements apply to whatever is placed. Get the insurance quoted before you write the offer, because a premium the payment cannot carry can decide whether the file qualifies.
Pismo Beach, Cambria and Avila Beach
Pismo Beach has stopped issuing new short-term rental licenses, a permit does not pass to a buyer, and vacation rentals are allowed only in certain zones of the downtown core, so a second home there cannot be bought on the assumption of nightly rent. Cambria is unincorporated and County-governed, inside the Coastal Zone: a vacation rental needs the County's zoning clearance, business license and transient occupancy tax certificate, the license cannot transfer to a new owner, and the services district is not issuing new water connections under its emergency declaration. Avila Beach is unincorporated too, under the County's coastal ordinance, which the County's own guide lists it in by name with a location standard of its own; the same permit set and the same no-transfer rule apply. A second home under Fannie Mae's rules is one you use yourself, so none of this changes the loan, but it decides what the home can and cannot be later.
