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Private jumbo underwriting remains tricky business

It's difficult for borrowers looking to fund a second-home purchase to find a lender willing to lend to them — especially if the mortgage is considered a jumbo loan, above current conforming lending limits. Per the WSJ, lenders aren't willing to let borrowers cross lines into investment properties:

Lenders are also keeping tabs on owners after they receive the loan. Many lenders require borrowers to sign a so-called affidavit of occupancy where they confirm the home will be owner-occupied. This agreement can give lenders the legal right to change the terms of the loan or demand immediate repayment if they find the home is being rented. Borrowers who are unable to make that payment could risk going into foreclosure. Also, some lenders say they occasionally contact the Internal Revenue Service to request transcripts of borrowers' tax returns to look for rental income.

For borrowers, sticking to the rules can be challenging, especially when they own real estate in resort towns where vacation rentals are in high demand and weeklong stays can fetch thousands of dollars in rent. "There is a built-in temptation to cheat.…If you're not going to be using it, you'd be foolish not to rent it out, financially speaking," says Stu Feldstein, president of mortgage-research firm SMR Research.

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3d rendering of a row of luxury townhouses along a street

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