Financing a Second Home: Mortgage Guidelines

Financing a second home is different than getting a mortgage for a primary residence:

  • You cannot use government-backed loans like FHA or VA programs.
  • Down payments are higher and guidelines are stricter.
  • Borrowers may have to prove that the home is a vacation property and not a rental.

Interest rates for second homes are competitive and not much higher than for primary homes.

Prequalify for a second home purchase in about five minutes.

Financing a Second Home

Financing a second home can be harder than buying a primary residence. If you have a mortgage against your primary residence, financing a second home means qualifying with two mortgage payments as well as your other monthly debts.

There are stricter requirements. For instance, here’s a breakdown of the differences between second home qualifying and primary residence qualifying with Fannie Mae:

Primary vs. Second Home Guidelines (Fannie Mae)

Primary Second
Min. Down Payment 3% 10%
Min. Credit Score 620 620
Max Number of Units 4 1
Community Second Mortgage Allowed Not allowed
Reserves Required? No Yes

Second Home Mortgage vs. Investment Home Loan

The second home mortgage requires a 10% down payment. Mortgage rates are comparable to first home mortgage rates. Investment property loans generally demand down payments of at least 20%.

In addition, fees and interest rates are substantially higher. For instance, a borrower putting 20% down with a Fannie Mae loan will pay 3.375% in added surcharges for investment property. That translates to an interest rate that’s about .5% higher. Or $3,350 in fees for every $100,000 financed.

Investment property financing is much riskier to lenders. Many people will let a rental property go into foreclosure if it proves to be a bad investment. But few will allow their home to be foreclosed and sold out from under them if they can help it.

If your second home is close to your current home and is not in a resort community, you’ll have difficulty convincing a lender that it’s not a rental.

In addition, if you plan to use Airbnb income to qualify for your mortgage payment, you’ll have to finance your vacation home as an investment property. To get a second home mortgage, you have to qualify without income from the subject property.

See today’s mortgage rates.

Ask an Expert

Homebuyers looking to qualify with a national direct lender with no mortgage overlays on government and conventional loans can contact Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] 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. Gustan Cho Associates also are correspondent lenders on non-QM loans and bank statement loans for self-employed borrowers.

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