Buying a Second Home
Thinking about buying a second home? Unlike a primary residence, an owner occupies a second home on a part-time basis only. While interest rates on a second home are similar to rates on a primary residence, lending requirements such as down payment, asset reserves and credit score can be more restrictive.
Criteria for Second Home Classification
First and foremost, a second home cannot be used as a rental property. If you either plan on renting the property, or have rented it in the past, it would fall into the classification of an investment property.
The second criterion is one of proximity to your primary residence. Generally speaking, a second home must be at least 50 miles away. Exceptions to the 50-mile rule are on a case-by-case basis, and are up to the discretion of the lender.
A house in a city and a house on the beach, even if they are less than 50 miles apart, could qualify, but you’ll need to verify that before committing to buying a second home.
Conventional loans for a second home require a 10% minimum down payment for a second home, while jumbo loans require a minimum of 20% or more. This differs from the purchase of a primary residence, in which case your down payment could be as low as 3% as long as you paid private mortgage insurance (PMI).
Down payments for a second home can come from standard sources such as bank or investment accounts. They can, however, also come from a more creative source such as a home equity line of credit. In this scenario, at least part of the down payment for your second home would come from the equity of your primary home.
For a better idea about different second home down payment scenarios, we invite you to utilize our interest rate quote. It’s free to use and requires no personal information.
Most lenders like to see credit scores above 700, but some will go as low as 620. A positive payment history is also a must, as recent delinquencies on your second home mortgage payment are usually a deal killer. Bankruptcies, short sales, foreclosures are also major red flags for second home financing.
You will need to prove a history of both reliable and continual income sources. A debt-to-income ratio below 45% will also be required. For second home jumbo financing, the ratio must be even lower.
Assets and Cash
Expect to show the ability to make at least 6 months’ worth of payments for both your primary residence and second home. Funds must be held in a liquid account such as a checking or savings account. Funds can also be held in an investment account, but you will only be given credit for a percentage of the amount, due to the fluctuation in value.
For more information about second home mortgages, or to find out how Sammamish Mortgage can help you, feel free to contact us today. As a Mortgage Company, we currently lend in all of Washington, Oregon, Idaho, Colorado & California.