Second Home Mortgage Loans

Second home mortgage loans have specific mortgage lending guidelines.  Second home mortgage loans are all conventional loan programs.  FHA loans are for owner occupant homes only.  To qualify for second home mortgage loans, the mortgage loan borrower needs to qualify for minimum conventional loan lending guidelines.  620 FICO score is the minimum credit score required to qualify for a conventional loan.  However, a 620 FICO credit score is considered a very low credit score for conventional loans and if a mortgage loan borrower has a 620 FICO credit score, the chances are that they will get hit with paying a high mortgage rate.  For the best possible mortgage rate on a conventional mortage rate, the mortgage loan borrower should have a 740 plus FICO credit score.  For example, today’s mortgage rate for a mortgage loan borrower with a 620 FICO credit score for a conventional loan, the mortgage rate would be 5.25%.  For a mortgage loan borrower with a 740 FICO credit score, the mortgage rate would be 4.25% for a 30 year fixed conventional loan.

Distance From Primary Home

For a home to be classified as a second home, the second home needs to be some distance away from the borrower’s primary residence.  At least 60 or more miles.  For second homes that are closer than 60 miles from borrower’s primary residence, the second home needs to serve a purpose why it should be classified as a second home such as being a waterfront property, resort area, golf course property, or have other unique out of the ordinary features.  A 10% minimum down payment is required for a second home purchase.

Debt To Income Ratios Calculations For Second Homes

Both the primary residence and second home mortgage payments are calculated when qualifying for the borrower’s debt to income ratios.  If the second home is rented part of the year or is part of the homeowners association rental program, that rental income cannot be used towards income to offset the second home housing expenses.  There are many times where a second home buyer cannot qualify for a second home due to higher debt to income ratios.  One option to overcome that is to purchase the second home as an investment home.  If a second home buyer can put a 25% down payment on the second home purchase and goes for an investment propety mortgage loan, then the borrower can use 75% of the potential market rental income towards the calculation of his or her debt to income qualification even though they are not planning on renting the second home.  The appraiser will decide what the market rent will be and 75% of the market rent will be used towards income for the borrower.

Gustan Cho NMLS ID 873293

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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