There is no greater investment than owning a home. That’s why many people decide that one home isn’t enough. They find that, given their financial situation, they are interested in purchasing a second home, and using that home for any number of purposes, including:

  • Vacation Home
  • Investment Property/Rental
  • Home for Family Members

For those who are interested in purchasing a second home, the process is not so different from purchasing the first home. There are, however, a few issues that you’ll need to take into consideration before a lender will provide you with a loan.

What Underwriters Look for in Borrowers
First homes are considered a lower risk for lenders because the assumption is that you’ll be more likely to pay the loan for a home you’re currently residing in. Similarly, a second home loan means more financial obligations, which in turn means that lenders have to make sure that you’ll be financially ready.
Some of the factors that underwriters look for include:

  • Cash Reserves – Most lenders want to see that you have enough cash on hand to cover any unforeseen expenses. It is estimated that you may need to prove you have enough cash for 6 months of payments for both properties you own, although exceptions may be made in select cases.
  • Greater Down Payment – You’ll want to speak with one of our loan originators, because every down payment need is different. However, a second home may require at least a 20% to 30% down payment. FHA loans do not apply to second homes.
  • Debt Ratio Requirements May Be Lower – Lenders always look into your credit score and debt to income ratio when determining your loan amount. For second homes, however, your debt to income ratio may need to be lower to qualify.

There are also financial considerations that you’ll want to make before you decide whether or not a second home mortgage is right for you. Interest rates may be slightly higher due to the increased risk, and you may want to include the potential cost of income tax on any rental properties.
Despite these considerations, a mortgage for a second home is not unlike a mortgage for a primary residence. For more information, or to help you determine whether or not it is in your best financial interests to consider purchasing a second home, contact one of our friendly loan originators.
We are more than happy to talk to you about your current budget, and see if we can make your second home dream a reality.

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