Second Home Mortgage Options
Conventional loans are commonly used to finance second homes because government-backed programs such as FHA, VA and USDA loans generally require the property to be a primary residence.
More specialized loan types may also be available in certain situations. For example, borrowers with substantial assets or nontraditional income may qualify through certain non-QM loan programs.
Second Home Loan Basics
| Factor |
What to Know |
| Qualification |
You generally need to meet second-home mortgage requirements for income, debt, assets, occupancy and underwriting. |
| Down payment |
You may be able to buy an eligible one-unit second home with as little as 10% down through a conventional loan. |
| Credit |
Your credit profile affects underwriting and mortgage pricing, although Fannie Mae no longer uses a fixed minimum credit score for loans evaluated through Desktop Underwriter. |
| Interest rates |
Second-home mortgage rates can be higher than rates for comparable primary-residence loans because additional conventional pricing adjustments can apply. |
| Reserves |
Fannie Mae generally requires at least two months of reserves for a second-home transaction evaluated through Desktop Underwriter. Additional reserves can apply. |
| Closing costs |
Second-home closing costs can include lender charges, appraisal and title costs, prepaid expenses and other transaction costs. |
| Property use |
You must occupy the property for some portion of the year. A property purchased primarily for rental use may need to be financed as an investment property. |
What Counts as a Second Home?
For conventional financing through Fannie Mae, a second home generally must:
- Be occupied by you for some portion of the year
- Be a one-unit property
- Be suitable for year-round occupancy
- Remain under your exclusive control
- Not be a timeshare
- Not be subject to an agreement that gives a management company control over occupancy
How you intend to use the property is an important part of the second home vs. investment property distinction. An investment property is generally real estate you own but do not occupy yourself.
Some rental activity can still be compatible with second-home financing. You may be able to rent out a second home while you are not using it, provided you continue to meet the occupancy and property-control requirements.
The same principle can apply to vacation properties rented to short-term guests. Whether a short-term rental can qualify as a second home depends on how you use and control the property, not simply on whether it is occasionally rented.
Can Rental Income Help You Qualify?
Generally, rental income from the second home itself cannot be used to help you qualify for a conventional second-home mortgage.
This means you may be allowed to rent the property at times without being able to count that expected income toward your mortgage qualification. The rules for using rental income when buying a second home are different from the rules that apply to an investment property.
Qualifying rental income from other eligible investment properties may be treated differently when it meets the applicable documentation and underwriting requirements.
Can You Buy a Second Home if You Already Have a Mortgage?
Yes. You can potentially buy a second home while continuing to make payments on your primary residence.
Your lender will generally consider both housing payments along with your other recurring debts when evaluating your application. Buying a second home while you already have a mortgage can therefore require enough income to support both properties as well as sufficient assets for the purchase and required reserves.
Home equity can potentially provide funds for the purchase, but using a HELOC, home equity loan or cash-out refinance can create another monthly obligation that affects qualification.
What to Consider Before Buying a Second Home
A second-home mortgage is designed for a property you genuinely intend to occupy for part of the year rather than a home purchased solely as a rental investment.
Most second-home mortgages use conventional financing, so lenders evaluate factors such as your income, existing debts, assets and credit when determining whether you qualify for a conventional loan.
Before buying, consider:
- How you plan to use the property throughout the year
- The down payment and closing costs you will need upfront
- Whether your income can support your current housing payment and the new mortgage
- The financial reserves you will need after closing
- How property taxes, insurance, association dues and maintenance affect the total cost of owning two homes
- Whether you expect to rent the property and how that affects its mortgage classification
If traditional income documentation does not fit your financial situation, certain non-QM programs may offer alternative ways to document income or assets. Eligibility and loan terms depend on the specific program and borrower.
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Finance a vacation home or part-time residence
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