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If you vacation in the same location every year or you’re looking for a break from your normal routine and unpleasant weather, you may consider purchasing a second home. Before you begin searching for properties on listing sites, it’s important to understand the differences between financing your primary residence and your second home.
A second home is a single-unit property that you own in addition to your primary residence. Property restrictions vary, but you may be able to finance a single-family home, condominium, or manufactured housing. According to data from the National Association of Home Builders, as of September 2024, 6.5 million homes in the United States served as second homes.
To qualify for home financing, your second home may not be used as an investment or rental property, including any long-term leasing or timeshare arrangements.
To qualify for a second home mortgage, borrowers may find that the requirements are stricter than when they financed their primary residence. Lenders want to be sure that you’ll be able to make payments for both of your properties.
There is always a chance a borrower could default or stop longer making their monthly mortgage payments. However, the risk increases with a second home loan because you’re doubling your financial responsibility.
Your mortgage lender must ensure your finances are stable enough for an additional monthly payment. Ideally, a borrower will need a high credit score and a low debt-to-income ratio. Your debt-to-income ratio, also known as DTI, is a ratio used by lenders to look at how much money you owe compared to how much money you earn.
Down payment amounts for second homes typically range between 10% and 30%. In the fourth quarter of 2024, Realtor.com reported 28% was the average second home down payment. Much like a traditional mortgage, the required percentage will vary depending on what loan program you choose and how much the home is worth.
Cash reserves are funds you set aside to cover certain costs in case of an emergency or income disruption. Cash reserves are typically measured by months. One month of reserves represents the amount necessary to make your monthly payment.
In addition to your mortgage costs, your finances must be stable enough to handle:
At Homestead Funding, we offer competitive financing for second homes. A borrower may choose an adjustable or fixed rate. Additionally, our jumbo program may be utilized for up to $3,000,000 for some borrowers. However, not all second home loan programs are available in all states. It’s best to work with a Licensed Loan Originator for details about what would work best for your situation. To learn more about your home financing options, contact us today!
Homestead Funding offers exceptional customer service and a convenient mortgage process. Whatever your financing needs, our goal is to exceed your expectations.
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