Until recently, home loans generally covered two types of properties: primary residences or investments. That was before services like Airbnb allowed anyone with an extra room to make a bit of extra money by renting it out for short periods of time. This blurred line between “my house” and “my investment” is causing trouble for some homeowners when they go to refinance their mortgages.
More and more homeowners say they are finding themselves on the receiving end of rejection letters from their long-time banks when trying to refinance their mortgage, simply because they rent a room on Airbnb, the Wall Street Journal reports.
When applying to refinance their loans, owners say they were under the impression that having a higher income would improve their credit. So they reported all income drawn for short-term rental deals.
But banks don’t exactly see it that way, the WSJ reports.
Because short-term rentals made online through Airbnb are fairly new, banks are having a difficult time placing these homes in the two predefined categories.
The process of renting out one’s home or a room gives the impression that the house is now considered a rental, or an investment property.
And these types of properties have long been considered to be riskier for banks, as homeowners have shown a higher tendency to default on investment-property loans.
One Seattle man says his application to refinance his home’s loan through Bank of America was denied recently.
The man reported on the application that he had collected $30,000 last year from renting the cottage in his home’s backyard. The bank reportedly told him the request was rejected because it didn’t allow home-equity lines of credit on properties in which the homeowner is operating a business.
“Here’s a bank I’ve had a relationship with for 30 years,” he said. “The assumption to me was the more your income is, the less risk to them. That assumption was wrong.”
A rep for Bank of America tells the WSJ that it would consider a customer’s home an investment property if there was a “material amount of commercial activity,” but that “incremental renting” wouldn’t be an issue.
A similar situation played out for a San Francisco couple and Wells Fargo. When the pair wanted to refinance their home, which is active on Airbnb for half of the year, they were instead told to apply as if the home were an investment property. However, that came with a 0.5% higher interest rate.
A rep for the bank tells the WSJ that Wells Fargo has no policy of restricting short-term rentals on its borrowers’ properties. Still, the spokesperson says there can be some confusion and tiptoeing related to new Airbnb rentals and banks’ willingness to issue mortgages or refinance existing ones.
Banks’ unwillingness to provide refinanced loans or mortgages to properties drawing income from short-term rentals could be tied to the past housing crisis, the WSJ reports.
When a homeowner defaults on a mortgage, investors or the government could ask the lender to repurchase the soured loan. To avoid this fate, many banks are playing it safe — at least for now.