Loan Requirements for a Second Home
Thinking about
a second home? Do you yearn for a second home
that's peaceful and relaxing? Most people do, but how do you finance
a second home?
The easiest way to purchase a second home is to take out a
home
equity loan against your current home, but if that's not possible
due to insufficient equity or you choose to avoid using your home as
collateral, then your best option is to obtain a mortgage for the
second home.
There are three popular government backed mortgage programs, FHA, VA
and the USDA home loan programs. Unfortunately, the government
backed loan programs prohibit second home financing, but, the
Federal National Mortgage Association, better known as Fannie Mae
will back second home loans. Fannie Mae does not provide mortgages
directly to the borrower, but works with approved
lenders to provide
mortgage financing, provided that the lenders meet Fannie Mae's
lending guidelines. Here are some of the ground rules:
Second home requirements
- cannot be subject to any agreements that give a management firm
control over
- the occupancy of the property
- is restricted to one-unit dwellings
- must be occupied by the borrower for some portion of the year
- must be suitable for year-round occupancy
- must not be rental property* or a timeshare arrangement
- the borrower must have exclusive control over the property
* you can rent out a second home for a portion of the year, you must
occupy the property for 10 percent of the number of days it’s rented
out for it to count as a second home
Second home down payment
The minimum down payment for a second home loan is only 10% for
both fixed rate and adjustable rate
mortgages if the loan is evaluated by an
automatic
underwriting system. However, if the mortgage is manually
underwritten, the down payment is determined by the
credit score and
debt to income ratio.
Second home mortgage credit score
and DTI
As previously stated, the
minimum down payment for a second home mortgage is dependant on the
credit score and debt to income ratio for
manually underwritten loans. If you're not familiar with the term, take a few
minutes to read Debt
to income ratio for buying a home.
In short, lenders add up all the monthly credit obligations
(including the proposed mortgage payment) and
divide the total monthly debt payments by the monthly gross income
to arrive at the debt to income percentage.. For
example:
Debt to Income | 36% (or less) | 36% (or less) | 45% (or less) | 45% (or less) |
Credit Score | 640 | 680 | 680 | 700 |
Minimum Down Payment Percentage | 25% | 10% | 25% | 10% |
Maximum loan amount
See
jumbo loan
Seller paid closing costs
The seller is permitted under the Fannie Mae second home mortgage
rules to pay a percentage of the buyer's closing costs. The amount
of the seller concession is limited by the down payment percentage.
Frequently
Asked Questions About Second Home Mortgages
Q. How much mortgage can I afford for a second home?
A. Call the lender who handled your mortgage on your current home, or speak to your bank's loan officer.
Q. What is the current mortgage rate for a second home?
A. See below
Q. Can I use my VA loan to buy a second home?
A. The VA home loan program is for owner occupied principal residences only. No second homes
Q. Can I get an FHA loan for a second home?
A. Technically yes. The FHA will permit a second home loan if
certain conditions are met. See
Can I get an FHA loan for a second home? Second home guidelines