When it comes to mortgages for second homes, the rules are different than those for primary residences. Generally, lenders require a larger down payment for a second home than they do for a main home. Depending on your credit rating and other factors, you may be able to put as little as 5% down on your primary mortgage. However, when it comes to a second home, you'll likely need to put in at least 10%.FHA loans are not an option for anything other than principal residences in the United States, so you'll need to look into conventional financing or a portfolio loan from a private lender.
In most cases, you'll need to make a minimum down payment of 10% for a vacation home. However, if you use the property as an investment property, you may be required to pay an even larger down payment. For second mortgages, the required down payment may be as low as 20%, but others (especially jumbo loans) may require down payments of 30% or more. 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 plan to purchase a vacation home, you can use it as an investment property and rent it out when you're not staying there. However, the income you generate won't be included in your rating calculations.
To avoid insurance premiums and open it up to a larger group of lenders, you'll likely need at least a 25% down payment. Mortgage interest rates for second homes can range from 0.5 to 0.75% higher compared to interest rates for main homes. 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. Fortunately, if you rent your newly built vacation home, RV, boat, or tiny house to others for a weekend or longer, you can still earn income with any of these options. Make sure your loan officer knows that you would like to finance your purchase as a vacation home and not as an investment property. The rise of Airbnb and similar services makes it easier for vacation home buyers to receive occasional rental income. If you rent your vacation home and use the income to pay your mortgage, your vacation home could pay for itself. If you're having trouble qualifying for a vacation home loan when you first apply, try looking for a lender with more lenient requirements.
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.