For instance, a residential mortgage typically closes relatively quickly—usually within a week or two. Approval on a commercial mortgage application, however, takes much longer—anywhere from 60 to 365 days.
Plus, commercial mortgage rates are much higher than residential mortgage rates. At present, a 5-year fixed residential rate hovers around 3%. A commercial 5-year fixed mortgage sits closer to 6.5% (although, you may be able to find 5.95% if you shop hard). For most budget-conscious homeowners that 300-basis-point jump will really add up and could quickly erode any money earned from using your property as a short-term rental.
Playing devil’s advocate for a moment, let’s look at what would happen if you opted to lie about the use of your short-term rental property.
Initially, this seems like relatively simple fib, with little consequence, but don’t be fooled.
“If you knowingly provide false documents to back-up your claims a lender can flag your account,” says Butler, “and send it to the shared fraud database.”
Once you’re in this database, which is known as Citadel, you are “severely restricted in your ability to get a mortgage,” says Butler. “Eventually, if you have enough equity in the property you’ll get a mortgage, but it will have to be through private lending with very, very high rates.”
We’re talking a mortgage rate of 10% or greater, depending on the situation.
How to protect yourself and your extra income
The best way to protect yourself is to be honest and upfront, and to live in the property you choose to rent out casually as short-term, temporary accommodation.