Fannie Mae Guidelines On Second Homes And Investment Properties


Fannie Mae Guidelines On Second Homes And Investment Properties

This BLOG On Fannie Mae Guidelines On Second Homes And Investment Properties Was UPDATED On May 16th, 2018

There are three types of mortgage loans when it comes to residential financing.

  1. Primary homes
  2. Second homes
  3. Investment homes

Primary home financing are owner occupant homes. Homeowners will reside in the home as their primary residence:

  • A primary home is a property where buyer will occupy for at least six month and one day at the subject property
  • Primary home financing is the loan program of choice
  • This is due to lenders viewing it as the least
  • Primary homes offer the lowest amount of down payment and the lowest interest rate
  • Lenders view borrowers financing primary home to be least likely to default on their mortgage loan than they would an investment property or second home
  • Government loan programs such as FHA, VA, USDA offer primary home financing only
  • Conventional loans offers primary, second, and investment home financing
  • Buyers seeking second home financing or investment home financing need to go with a conventional loan program

Fannie Mae Guidelines On Second Homes Versus Investment Loans

There are strict rules when it comes to Fannie Mae guidelines on second homes.

  • Many folks wonder why Fannie Mae and Freddie Mac makes such a big deal with second home financing
  • The reason why their are strict rules and regulations with second home financing is because second home loans offers much relaxed and lenient lending guidelines than an investment homes
  • Mortgage rates on second home financing is much lower than an investment home financing
  • Second home financing is often 050% or more lower
  • Down payment requirements are much lower on second home financing versus investment homes
  • Minimum down payment requirements for second home financing is 10% down payment versus 20% or more with investment homes
  • There are no reserve requirements with second home financing
  • With investment homes, three to six months of reserves may be required

Fannie Mae Guidelines On Second Home Distance Requirements

As long as borrowers qualify with credit and income, there are certain criteria to meet second home financing guidelines.  The second home purchase needs to make sense.

  • If second home buyer currently owns a home and want to purchase a similar home in their neighborhood, that will not qualify as a second home
  • Why would a home buyer need another home nearby primary home that is similar in size and value? 
  • Most mortgage underwriters will consider these type of second home purchase requests as an investment home purchase
  • The bottom line is that the second home needs to make sense
  • For example, here is a case scenario:
    • if you live in Illinois and want to purchase a second home in Florida
    • that will make sense and the mortgage underwriter will not question that at all
    • However, if buyer lives in Chicago
    • want to purchase a second home in Schaumburg, a suburb of Chicago that is only 10 miles away
    • that will not make sense
    • If buyer had a home in Tampa, Florida and want to purchase a home in Orlando nearby Walt Disney World
    • it is nearby the primary home
    • purchase will make sense
    • this is alright because second home buyer is purchasing the second home in a resort area
    • same if buyer lives in Tampa but want to buy a ocean front condominium in Clearwater, Florida
    • that will make sense even though it is nearby because the second property purchase is a waterfront property
  • Mortgage underwriters are not dummies
  • They have heard many excuses so do not try to pull a fast one
  • The case scenario needs to make sense to them
  • Most second homes need to be at least 100 miles from the primary homeowner’s residence to qualify
  • Exemption to distance requirements is when the second home is a waterfront property or in a resort area

Can I Qualify For Second Home Without Having Primary Residence?

Fannie Mae Guidelines On Second Homes does not require second home buyers to own a primary home. If borrowers currently do not own a home and rent or live with relatives, they can still qualify to purchase a second home without owning a primary residence.

  • For example, if buyer are living with parents in Illinois and want to purchase a home in Florida, they can purchase the Florida property as a second home
  • 10% down payment, conventional mortgage loan

Qualification Requirements For Second Homes

Second home financing are conventional loans and conforming Fannie Mae Guidelines On Second Homes apply:.

  • FHA, VA, and USDA loan programs do not have second home financing programs
  • 10% minimum down payment is required
  • Both the primary and proposed second home mortgage payments will be used to qualify debt to income ratios
  • Buyers with prior bankruptcy and/or foreclosure, waiting period after bankruptcy and/or foreclosure apply to qualify for conventional loan
  • Four year after Chapter 7, deed in lieu, foreclosure waiting period to qualify for conventional loans
  • There is a 7 year waiting period after a foreclosure is required to qualify for a conventional loan
  • There is a four year waiting period after Chapter 13 Bankruptcy dismissal date
  • There is a two year waiting period after Chapter 13 Bankruptcy discharged date
  • Borrowers with mortgage included in Chapter 13 Bankruptcy there is a mandatory four year waiting period to qualify for a conventional loan

Contact Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for faster response. We are direct lenders with no lender overlays on government and conventional loans. We also offer non-qm loans, alternative financing, and bank statement mortgage loans for self employed borrowers.

Related> Can second home purchase be primary home?

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