Real Estate Home Mortgages/buying a 2nd home

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Question
We want to buy a home in Texas and move there in 2016.  In the meantime, we have found a great home that is for sale @ 199k that we feel wont be on the market long.  Although we have 20% down payment, we don't want to drain our savings.  Is it possible to purchase a 2nd home with only 10% down?  We have 1% debt to income ratio and 800+ FICO scores. Is it true that classifying it as a "vacation" home provides less stringent loan requirements? We won't be renting it out, but rather fixing it up until we are ready to move there permanently. What do you recommend?

Answer
Liz,

You should be able to obtain a 90% LTV loan for a second home, provided you can convince the lender that it is a vacation home. If the 2nd home is in a resort area 100 miles from your current home, you shouldn't have a problem with the lender. On the other hand, if it is close by to your current residence it would be looked at as an investment (rental) property and not as a second home; the down payment requirements for a rental property are higher, as are the interest rates offered.

Some benefits accrue when the property is a true second home. I've mentioned the lower down payment requirement, and you also obtain rates and terms similar to what you get on owner-occupied properties. However, there is a big "but": to obtain these great terms you have to show enough income to be able to carry two homes, without any offsetting rental income. This is one reason why very few people get to qualify for second home loans, and the ones who do tend to be well off financially.

Best,


Eric  
About Real Estate Home Mortgages
This topic answers questions related to purchasing a home, owning a home, home ownership, mortgage education, mortgage applications, and mortgage needs whether buying a first home or refinancing a current loan. Issues related to home ownership, home equity, mortgage education, refinacing options, home improvment finacing, first time home loans, home equity loans, vactation home loans, and mortgages for investment homes are dealt with here also. Though not the primary focus of this topic, Home Equity Lines of Credits (HELOCS), reverse mortgages, and calculating home equity may also be asked. If you do not see your home mortgae, home finacing, or home equity question answered in this area then please ask a question here

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Eric Forster

Expertise

Did your last mortgage broker or lender trick you into a messy situation which could cost you your home? I've been close to 30 years in the mortgage industry, and I've seen it all. Believe me, it is not pretty. As the owner of a mortgage company I am called frequently to testify as an expert witness in mortgage fraud cases and other cases where lenders did not fully disclose the terms of the loans they were offering to the borrowers. I have seen fraud being committed by borrowers - and by lenders. It's a tough world out there. And by the way - you are invited to visit my website, www.real-estate-expert-witness.net.

Experience

More than 25 years in loan production and underwriting in Southern California.

Organizations
Mortgage Bankers of America (Southern California Chapter)

Publications
Former columnist for AOL Financial Center and the author of a mortgage primer.

Education/Credentials
MBA (Finance)

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