Right now could be a good time to purchase a second home. Not only do second homes save money on the expensive hotel costs of vacations, they can also be used as a potential source of income. Today’s current low mortgage rates could make purchasing that second home, for whatever reason, a much more affordable move than just a few years ago.
Applying for a mortgage loan on a second home is different from applying for a loan on your primary residence (the home you live in the most).
Helpful Information About Second Home Mortgages
Second home loans are not uncommon, nearly half of those who own a second home have purchased one with the use of a second home mortgage. There are different rules and qualifications when it comes to taking out a second mortgage as compared to a first mortgage. These differences include:
- Most lenders will want to see two months of reserves
- The credit score qualifications are higher
- Second-home loans offer lower interest rates than rental or investment property loans but still have a higher rate than a traditional first mortgage
- You may be able to cover the cost of your second home payments by renting your home when you are not vacationing in it, with some loans this can still qualify as a vacation residence
- The property must be occupied by the owner for a set minimum amount of days each year
Second Loan Qualifying Requirements
Second home mortgages are a little more strict than first-home mortgages. Fannie Mae and Freddie Mac have set requirements that most lenders use. These guidelines apply to applicants and the property being purchased.
- Borrower Requirements: buyers will need to have at least 10% of the purchase price to put down on the home, this rule is not negotiable for federally backed loans. Other requirements that may have room for negotiation are: 680 credit score or higher, lenders that have a 640 to 679 credit score are still eligible with a 25% down payment, the debt-to-income ratio must be 45% or lower.
- Note: an applicant may have room to negotiate these requirements if they are strong in one area, but not another.
- Property Requirements: the home being purchased must be occupied by the owner for a set portion of the year, it may not be a duplex/tri-plex/four-plex, able to be used year-round, belongs only to the owner on the mortgage application, not rented as a full-time residence, not under a timeshare arrangement, not operated by a management company with control over-occupancy, the property must be a reasonable distance from your first home (this tells the lender you are planning to get away from home and relax there to use it as a vacation residence)
If you plan to rent a second home full time you will need to apply for a different type of mortgage. This will make the property an investment property which is a different type of loan from a standard second home loan/vacation home loan.
For more information on second home mortgages in Mission Viejo and California please contact me any time to discover all of your loan options.
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