As personal wealth and income grow, many existing homeowners want to take advantage of low interest rates and invest in second homes. This is a great opportunity to grow your business. Knowing the ins and outs of second home financing will help you guide your clients.
Generally, lenders will only consider second home financing on properties that are located at least 50 miles away from a buyer’s primary residence. Anything closer would likely be deemed an investment property.
The property must be a single-family residence. FHA or VA financing is not available for second home purchases. Fannie Mae or Freddie Mac financing is offered for second home financing with terms similar to those of loans for primary residences. Creditworthiness will be the determining factor as to how much buyers will have to put down. Buyers can usually plan on putting 10% to 25% down.
Since second home loans are considered a higher risk to lenders, borrowers will have to have an overall debt-to-income ratio of not more than 36%, lower than what is acceptable for primary residence purchases.
To help ensure that the property purchase is not intended as investment property, second home lending guidelines dictate that the property be owner-occupied at least 14 days out of the year or 10% of the rental days, whichever is greater.
These tips will help you direct your buyers in making the right second home buying decisions. Please have them make an appointment with me so we can get them preapproved.