Mortgage Loan Programs for Vacation and Investment Homes
Down Payment Required
A lot has changed in the past couple years for conventional mortgages on second homes and investment properties. Specifically, adjustments made on these types of conventional loans have become much larger as Fannie Mae and Freddie Mac aim to focus more on homes that people live in full time. That means they purposely made mortgages for second homes and investment properties more expensive. You can put down as little as 10% on a second home, and as little as 15% on an investment property but the rate adjustments are painful. The sweet spots are at least 20% for a second home, and at least 25% for an investment property.
Above Average Credit Required
When purchasing a second home or investment property you generally must have better than average credit. These transactions are already seen as risky so adding a credit score risk to the equation can push the risk level beyond acceptable. When you have an investment property transaction type coupled with a credit score below 680 the conventional guidelines say we can do it, but the adjustments to the rate/pricing can be so much that an individual can experience what we call being “priced out of the market”. That is a situation where the adjustments to their pricing/rate scenario are so great that anywhere we land on the rate sheet is with an enormous upfront cost.
When purchasing a second home or investment property we must document that you have some money left over once the transaction is closed. These transactions are seen as more risky and therefore this reserve requirement is in place to help offset some risk by ensuring that the borrower has a cushion.
There are lots of options and flexible underwriting guidelines when it comes to investment properties. One size does not fit all, and many lenders are not well versed in all the guidelines that can come into play for each individual. Be sure to have a discussion with us about your unique qualifications.