Financing a Second Home

How to Buy a Second Home

If you visit the lake regularly or love the idea of having a home away from home, it may be worth it to invest in a second home. With mortgage rates still near historic lows, now may be the time to buy property in your favorite vacation or travel destination.

Second Home Loan Requirements

There are specific requirements for defining a second home. Fannie Mae’s second home requirements are:

It cannot be a full time rental or investment property. Second home loans tend to have lower rates than rental and investment properties.
Restricted to single-unit dwellings.
Must be suitable for year-round occupancy.
Cannot be subject to any agreements that give a management firm control over the occupancy of the property.
The borrower must have exclusive control over the property.

You may also need to need to meet minimum distance requirements from your primary residence. If it is located in a recreational area such as a lake or a ski resort, the minimum distance requirements may not be required.

Conventional Financing for a Second Home

The loan process is similar to purchasing a primary residence with small differences in minimum down payment and reserve requirement. Second homes require at least 10% down. The lender will need to verify you have sufficient funds for closing and between 2-6 months’ worth of reserves to cover both your primary and second home loan payments. Since government loan programs (FHA, VA, USDA) are not available for second home financing, let’s look at other financing options.

Second Home Financing: Cash-Out Refinance

A cash-out involves refinancing your primary residence mortgage and receiving cash for the remaining equity. You need sufficient equity in your home for this to be an option. For example, if you owe $100,000 on your home worth $500,000, you may be able to cash out up to 80% loan-to-value (LTV), which would be $400,000 minus the $100,000 you owe. This leaves you with $300,000 in cash to purchase your vacation property. You can choose term options from 5-30 years fixed or adjustable, plus you’ll have one monthly payment, not two.

Connect with a mortgage loan originator if you have any questions.

Opinions expressed above are the personal opinions of the author and meant for illustration purposes only. For specific questions regarding your personal lending needs, please call RCB Bank at 855-BANK-RCB. With approved credit. Terms, qualifications and other restrictions apply. Member FDIC, Equal Housing Lender, RCB Bank NMLS #798151.