Fannie Mae Guidelines On Second Homes And Investment Properties

This article covers Fannie Mae Guidelines On Second Homes And Investment Properties

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 is owner-occupant homes. Homeowners will reside in the home as their primary residence:

  • A primary home is a property where the buyer will occupy for at least six months 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 the 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 offer 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 make such a big deal with second home financing. The reason why there are strict rules and regulations with second home financing. This is because second home loans offer much relaxed and lenient lending guidelines than investment homes.

Mortgage rates on second home financing are much lower than investment home financing. Second-home financing is often 050% or 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 a second home buyer currently owns a home and wants 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 this type of second home purchase request as an investment home purchase:

How Does Mortgage Underwriters Classify Second Home Versus Investment Homes

How Does Mortgage Underwriters Classify Second Home Versus Investment Homes

The bottom line is that the second home needs to make sense to be classified as a second home:

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 the 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 the 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
  • the purchase will make sense
  • this is alright because the second home buyer is purchasing the second home in a resort area
  • same if the buyer lives in Tampa but wants to buy an oceanfront 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 the buyer is living with parents in Illinois and wants to purchase a home in Florida, they can purchase the Florida property as a second home. A 10% down payment on a second home with a conventional mortgage loan.

Qualification Requirements For Second Homes

What are the eligibility requirements for Second Homes

Second-home financing is 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 a conventional loan. Four years after Chapter 7, deed in lieu, the 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 the Chapter 13 Bankruptcy dismissal date. There is a two-year waiting period after the 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.

Borrowers who need to qualify for a mortgage with a five-star mortgage company licensed in multiple states with no lender overlays, please contact us at Gustan Cho Associates Mortgage Group at 262-716-8151. Or text us for a faster response. Borrowers can also email us at [email protected] We are mortgage bankers and have the ability to broker mortgage loans. Gustan Cho Associates has dozens of lending relationships with wholesale non-QM and alternative lenders. Some of the popular non-QM loan programs we offer are bank statement mortgage loans with no income tax required, non-QM loans one day out of bankruptcy and foreclosure, asset depletion, no-doc loans, P and L only mortgages, fix and flip mortgages, investor cash flow mortgages.

Related> Can a second home purchase be a primary home?

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