Second Home Financing

Second Home Financing Requirements

There are rules and regulations with second home financing. First, the home needs to be classified as a second home. For the home to be classified as a second home, there needs to be a distance between the first primary home and the proposed second home location. ┬áThe distance needs to be at least 60 miles from the primary home of the mortgage loan borrower or the property needs to be located in a different state. For example, if the primary mortgage loan borrower’s first home is in Illinois and the second home purchase is in Florida, there would be no question that the second home purchase is legitimate. However, if the borrower’s first home was in Naperville, Illinois and the second home purchase was in Downers Grove, Illinois, which is less than a 10 mile distance, then the Downers Grove second home purchase will not qualify for second home financing due to the short distance. Second Home Financing needs to make sense otherwise it will not qualify for second home financing and the only loan program the second home buyer will qualify for would be investment home financing.

Second Home Financing Versus Investment Home Financing

Second home financing and investment home financing can only be done with conventional loans or portfolio loans. Other loan programs such as FHA Loans, VA Loans, and USDA Loans are only for owner occupant primary homes only. The reason why second home financing is much more favorable than investment home financing is because with second home loans, a 10% down payment is required and mortgage rates are comparable to owner occupied primary home mortgage rates. Investment home financing require 20% down payment and mortgage rates are typically 0.50% higher than second home financing.

Special Circumstances To Be Classified As Second Home

There are special circumstances where mortgage lenders will waive the distance between the primary home and second home requirements if the deal makes sense. If the primary home is a single family home and the second home buyer wants to purchase a second home that is nearby, which is 60 miles or less than the primary home, they can do so and qualify for second home financing as long as the second home purchase is a waterfront property and/or in a resort area. For example, if the second home buyer has a home in the suburbs of Chicago and it is only 30 to 40 miles away from downtown Chicago and want to purchase a condominium in Chicago so they can enjoy the nightlife on the weekends, that is doable and these home buyers will most definitely qualify for second home financing even though the distance is less than 60 miles. Same scenario with a homeowner who has a primary owner occupant home in Tampa, Florida, however want to purchase a waterfront condominium in Clearwater, Florida which is only 25 miles away from where they live, they will qualify for second home financing. If a homeowner lives in Tampa, Florida and owns a single family home that is 2,000 square feet and wants to purchase another single family home that is 2,000 square feet in Clearwater, Florida, that would not qualify for second home financing. On this case scenario, they would only qualify for an investment home financing and the home buyer will need to put a 20% down payment and get mortgage rates for investment homes and not second home mortgage rates.