When it comes to buying a second home, lenders have stricter requirements than for primary residences. To qualify for a second home loan, you'll likely need a credit score of 700 or higher. However, some lenders may consider applicants with a score of 620 or higher. Credit rating requirements are slightly higher for second homes than for primary ones.
For example, Fannie Mae sets her minimum FICO at 620 for primary home purchase loans with at least 25 percent down and 640 for vacation homes with down payments of 25 percent or more. Naturally, lenders will also want to analyze your credit history, taking into account late mortgage payments, exorbitant credit card balances, and bankruptcies. The more debt you have with multiple payments, the greater your risk to the lender. If you pay in cash, no one necessarily cares if you have good credit. However, if you need financing, then a credit score is a concern. When considering the best credit score for buying a second home, many lenders use FICO (Fair Isaac Corp.), which rates consumers in the range of 300 to 850 points.
A higher score indicates less risk to the lender. Closing unused accounts may seem like a good idea, but it can increase your credit utilization ratio and cause your credit rating to decline. According to the NAR Annual Vacation Homebuyer Survey, a home equity line of credit (HELOC) in a primary residence is a favorite source of financing for second-home buyers. If you have enough equity in your home right now, you can simply apply for a line of credit and buy your second home directly or use the funds to make a down payment. But you need at least a 10% discount to buy a vacation home and that's if the rest of your application is very strong (high credit score, low debt, etc.).The minimum credit score for buying a second home will depend on several factors and can vary from mortgage lender to mortgage lender.
But if you have a lower credit score than desired, it's still possible to buy a second home with bad credit. Here's what you need to know about buying a second home with low credit, plus some helpful tips on how to do it.