Gatlinburg Cabin Loan Information

When looking to purchase a property in the Smoky Mountains, especially an overnight rental investment cabin, using a knowledgeable and qualified lender in the industry is vital. I have seen several times where large out of state lenders, who are licensed to lend in Tennessee, aren’t aware of the nuances and details of investment cabin loans.

Often, these lenders will use appraisers from our adjacent larger market of Knoxville that aren’t as familiar with the Sevier County cabin market. Appraisers very rarely take the “income approach” when evaluating an overnight rental cabin’s value even on “investment loans” unless the rental income is necessary to qualify based on DTI (debt to income ratios). Instead, most take the sales comparison approach. Which can be very appropriate and in most situations is correct, but in the investment cabin industry it is very important to consider the past rental income obtained and/or the anticipated future rental income.

It isn’t uncommon to have two cabins the same square footage in the same subdivision that will have a substantially different gross rental income and return on investment. The reasons are plentiful, including a different management company, a better mountain view, more desirable interior amenities such as a theater room, and a host of other explanations. When evaluating a property as an overnight cabin investment the price per square foot certainly matters, but taking into consideration the past rental history and the amenities within the cabin are also a high level of importance. At times lenders and appraisers don’t take this into consideration (or assign little weight to it) when evaluating or appraising a cabin.

Historical Mortgage Rate Data & Financing Information

Graph of the past Year for 30 Year Fixed Mortgage Rates

Note: These rates are for 30 year fixed rate mortgages within the Unites States for regular residential homes as sourced by Freddie Mac. Overnight cabin rental investments will most often require an “investment” loan that is a higher rate than an owner occupied residential loan.

Source: Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis

Local banks are sometimes reluctant to give long term fixed investment cabin loans. Often they will be more likely to do in house loans such as a 5 year balloon based on a 15, 20, or 30 year amortization. This type of loan certainly isn’t for everyone. With the low interest rates in today’s market it creates a high likelihood that in 5 years when the note is due and payable that one will face a higher interest rate and payment when a new loan is considered if they aren’t able to pay off the loan in it’s entirety. This could fairly substantially alter the ROI depending upon how large the fluctuation of interest rates were during the balloon term to the day the note was due.

30 Year Fixed Rate Mortgage Averages in the United States

Source: Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis

There are, however, some local banks that will do longer term fixed rates on overnight rental investment cabin loans. These are primarily sold as typical Fannie Mae or Freddie Mac insured loans. Small local banks aren’t as eager or as likely to offer a longer term fixed rate loan. They do, however, excel in construction loans on cabins and other properties.

I closely follow the 10 year treasury market as the yield and the mortgage market often have a correlation. 

There are a couple lenders I feel confident in for cabin loans based on their experience in our market, overall knowledge, and competitive interest rates. Please feel free to contact me for some suggestions.

Historical 30 Year Fixed Rate Mortgage Averages

Source: Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis