The Differences Between Mortgages in Main Homes and Second Homes. On your primary mortgage, you may be able to put a down payment of as little as 5%, depending on your credit rating and other factors. However, in a second home, you'll probably need to put in at least 10%. Since FHA loans aren't an option for anything except for principal residences in the United States, you'll need conventional financing or a portfolio loan from a private lender.
Either way, lenders generally require a 20% to 25% down payment on a second home to make it less risky for them. If you use the property as an investment property, you may be required to pay an even larger down payment. Increasing Number of Second-Time Homebuyers Buy Homes with a Lump Sum of Cash. However, if you go the mortgage route, the required down payment may be higher than what you paid the first time.
In some cases, second mortgage down payments may be as low as the normal 20%, but others (especially jumbo loans) may require down payments of 30% or more. The rules also differ for vacation homes, in particular between vacation homes purchased for personal use and vacation homes used as rental property. As rental properties are often considered higher risk, more stringent rating criteria may apply than if the vacation home is for personal use only. As described by National Equity Lending, you may still be able to buy a second home with as little as 5% down payment with the corresponding insurance premium added to the mortgage.
With a 20% down payment, most lenders will finance your mortgage like a conventional loan. However, for rental properties, you'll likely need at least a 20% down payment, and yet you're limited to just a few lenders who are willing to lend you with no insurance premium added to the mortgage. To avoid insurance premiums and open it up to a larger group of lenders, you'll likely need at least a 25% down payment. If you plan to purchase a vacation home, in most cases, you will be required to make a minimum down payment of 10%.
Fortunately, you can use it as an investment property, but the income you generate won't be included in your rating calculations. Potentially, you can still earn income with any of these options, renting your newly built vacation home, RV, boat, or tiny house to others for a weekend or longer. Mortgage interest rates for second homes can range from 0.5 to 0.75% higher compared to interest rates for main homes. Unlike investment properties, you can't use future rental income to help you qualify for a vacation home.
If you have renters in your vacation home for more than 15 days a year, you'll need to report rent as income to the IRS. If you rent your vacation home and use the income to pay your mortgage, your vacation home could pay for itself. A second home can act as both a vacation home and an investment, as landlords can easily rent it out when they are not staying there. TAKE ADVANTAGE OF HOME EQUITY If you have at least 15% equity in your primary residence, you could apply for a home equity loan or use the proceeds of a cash out refinance as a down payment for a rental property.
If you're having trouble qualifying for a vacation home loan when you first apply, try looking for a lender with more lenient requirements. If you are buying a multi-unit vacation home, lenders will almost always treat your purchase as an investment property, whether you plan to rent it or not. Whether you've managed to save a significant down payment or you're starting to save, you might be wondering what the typical down payment for a vacation home is. Make sure your loan officer knows that you would like to finance your purchase as a vacation home and not as an investment property.
According to NAR's Annual Vacation Homebuyer Survey, a Home Equity Line of Credit (HELOC) in a primary residence is a favorite funding source for second-home buyers. The rise of Airbnb and similar services makes it easier for vacation home buyers to receive occasional rental income. . .