What Are The Lending Guidelines On Second Home Mortgage

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What Are The Lending Guidelines On Second Home Mortgage

This BLOG On What Are The Lending Guidelines On Second Home Mortgage Was UPDATED On February 28th, 2018

For those seeking second home mortgage, there are minimum second home mortgage guidelines. Buyers cannot qualify for second home mortgage loans with government loans:

  • Second home financing needs to be conventional loans
  • FHA, VA, USDA loans are for primary owner occupied homes only
  • There are requirements for a second home purchase to be classified as a second home
  • The deal needs to make sense
  • If primary residence and second home are comparable properties in size and it is close to each other, then the second home purchase cannot qualify for second home financing
  • Needs to qualify as investment home financing
  • Mortgage lenders do not want to finance a second home buyer for a second home financing if the property is not a second home but an investment home
  • There are differences between second home financing and investment home financing

Differences Between Second Home Mortgage And Investment Home Mortgage

Second home mortgage requires a 10% down payment and the mortgage rates are comparable to first home mortgage rates.

  • Investment home financing requires a minimum of 15% down payment but most mortgage lenders will require 20% down payment
  • Mortgage rates for investment home financing is higher than second home financing
  • Normally, investment home financing has 0.50% higher in mortgage rates than second home financing
  • To qualify for second home financing, the second home needs to be quite a distance away from the home buyer’s primary residence
  • As mentioned earlier, borrowers cannot qualify for second home financing if the second property is less than 60 miles from your primary residence

Meeting Debt To Income Ratios On Second Home Mortgage

Second home buyers cannot use potential rental income with second home mortgage.

  • Case Scenario Where Second Home Mortgage Needs To Convert To Investment Home Mortgage
  • If a second home buyer has high debt to income ratios and cannot qualify for a second home financing and the property is an actual second home there is an alternative
  • Buyer might have to do an investment home financing so the second home buyer can use the potential rental income as qualified income
  • Buyers can use 75% of the potential investment home rental income to qualify towards debt to income ratios on investment home purchases
  • For example, if the home that is being purchased has a market rent of $1,000 per month, borrowers can use 75% of the $1,000 towards qualified income when calculating debt to income ratios on mortgage application
  • By putting down 20% down payment and getting a mortgage loan as an investment home loan, home buyers can now add the rental income in calculating debt to income ratios
  • This is a way where you can qualify for a second home with higher debt to income ratios where buying as a second home would not have qualified

Condotel Financing And Non-Warrantable Condo Loans

The Gustan Cho Team at USA Mortgage can help buyers of condotels and non-warrantable condo loans.

Here are the requirements:

  • 25% down payment on condotels and 20% down payment on non-warrantable condo loans
  • Condo unit needs to be at least 500 square feet
  • Minimum 680 credit scores
  • 43% debt to income ratios
  • One year reserves for all properties borrower has in their financials
  • Reserves can be in other liquid assets such as 401k, securities accounts, other accounts
  • 30 year term but adjustable rate mortgages only

Qualifying For Mortgage With Direct Lender With No Mortgage Overlays

Home Buyers looking to qualify with a national direct lender with no mortgage overlays on government and conventional loans can contact us at The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@loancabin.com. We are second home mortgage experts and have zero overlays on government and conventional loans. We also offer portfolio loans on condotel financing and non-warrantable condo loans. The Gustan Cho Team at USA Mortgage also are correspondent lenders on non-qm loans and bank statement loans for self employed borrowers.

By Gustan Cho

www.gustancho.com

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