Lenders Have Stricter Requirements A high credit score will help you qualify for a second home. You'll likely want to get a credit rating of 700 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.
Lenders may consider applicants with a score of 620 or higher, although a score higher than 700 is preferable when qualifying for a second home loan. Naturally, they'll also want to analyze your credit history, taking into account late mortgage payments, exorbitant credit card balances, and bankruptcies. The more you extend to you with multiple debt payments, the greater your risk to the lender. Strictly speaking, you don't need a credit score to buy a home.
If you pay in cash, no one necessarily cares if you have good credit. However, if, like most aspiring American homeowners, you'll need financing, then a credit score is a concern. When considering the best credit score for buying a home, many lenders use FICO (Fair Isaac Corp.), which rates consumers in the range of 300 to 850 points, and a higher score indicates less risk to the lender. Closing unused accounts seems 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, like more than 35% of Americans, have a lower credit score than you would prefer, you're probably wondering if it's possible to buy a second home with bad credit. Here's everything you need to know about buying a second home with low credit, plus some helpful tips on how to do it.