New Fannie Mae Guidelines On Second Homes


Primary Homes, Second Homes, Investment Homes: Fannie Mae Guidelines On Second Homes

Second Home Financing
Gustan Cho Associates

There are three types of mortgage loans when it comes to residential financing.  Primary homes, second homes, and investment homes.  Primary home financing are owner occupant homes where the mortgage loan borrower will reside in the home as their primary home.  A primary home is a home where the mortgage borrower will occupy in the home for at least six month and one day at the subject property.  Primary home financing is the mortgage loan program of choice because mortgage lenders view it as the least risky and will offer the lowest amount of down payment and the lowest interest rate to a owner occupied mortgage home loan.  Mortgage lenders view that a mortgage borrower who has their primary home financed will be least likely to default on their primary residence’s mortgage loan than they would an investment property or even a second home.  Government loan programs such as FHA, VA, USDA offer primary home financing only.  Conventional loan offers primary home financing as well.  If you are seeking second home financing or investment home financing, you need to go with a conventional loan program.

Mortgage Loans For Second Homes: Fannie Mae Guidelines On Second Homes

There are strict rules when it comes to Fannie Mae guidelines on second homes.  Many folks wonder why Fannie Mae 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 financing offers much relaxed and lenient mortgage lending guidelines than an investment home financing.  Mortgage rates on second home financing is much lower than an investment home financing, often 050% or more lower.  Down payment requirements are much lower on second home financing versus investment home financing.  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 where with investment homes, three to six months of reserves may be required.

Fannie Mae Guidelines On Second Home Financing?

As long as you qualify with credit and income, there are certain criteria to meet second home financing guidelines.  The second home purchase needs to make sense.  If you currently own a home and want to purchase a similar home in your neighborhood, that will not qualify as a second home.  Why would you need another home nearby your 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, 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 you live in Chicago and want to purchase a second home in Schaumburg, a suburb of Chicago, that will not make sense.  If you had a home in Tampa, Florida and want to purchase a home in Orlando nearby Walt Disney World, even though it is nearby the second home purchase will make sense because you are purchasing the second home in a resort area.  Same thing with if you live 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 and 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 60 miles from the primary homeowner’s residence to qualify unless the second home is a waterfront property or in a resort area.

Can I Qualify For Second Home Without Having Primary Residence?

If you currently do not own a home and rent or live with relatives, you can still qualify to purchase a second home without owning a primary residence.  For example, if you are living with your parents in Illinois and want to purchase a home in Florida, you can purchase the Florida property as a second home.  10% down payment, conventional mortgage loan.

Qualification Requirements For Second Home Financing

Second home financing are conventional loans and conventional loan mortgage lending guidelines 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.  If you have prior bankruptcy and/or foreclosure, waiting period after bankruptcy and/or foreclosure apply to qualify for conventional loan.  Four year after waiting period to qualify for a conventional loan.  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 a deed in lieu of foreclosure and/or short sale to qualify for a conventional loan.  If you had a foreclosure as part of your bankruptcy, there is a mandatory four year waiting period to qualify for a conventional loan.

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