Reader Question regarding Down Payments for Second Homes


mortgageporter-thinkingI received this comment from one of my readers on a post about occupancy and I thought it would make a good post all on it’s own.

What is the normal down payment on a second home? Our credit is in the “good” range and our debt to income is very good.

Also, if we are eventually moving to our “second” home (3 hrs away) can we say its our primary residence in order to get a lower down payment?

Second homes are almost treated the same as a primary residence (aka owner occupied) home with most conventional financing. You cannot finance a second home using FHA, USDA or VA loans and there are some conventional programs, like Home Advantage and Freddie Mac Home Possible, which will not allow financing of a second home (only primary residences).  Conventional financing will allow a down payment as low as 10% with a conforming loan amount on a second or vacation home. If you’re buying a Fannie Mae HomePath property, and use a Fannie Mae HomePath mortgage, you can buy a home with a 10% down payment.

Second homes may sometimes be viewed as an investment property by the underwriter, which would then call for a larger down payment. Homes that are located near the home buyers primary residence or that don’t seem to make sense as a second home (appear to be for an investment) may be treated as a investment property. When this happens, expect to have the lender require 20% down payment at minimum.

With the reader’s property being 3 hours away, it will probably meet the “second” home qualifications. It cannot be a “primary” residence unless they are going to live in it for a majority of the time. Lenders are going to consider things like where the buyer works in relationship to where the property is located as well as other properties they currently own (such as their current primary).  A borrower should never “say” a property is for a certain use in order to get a lower down payment or better rate as this could be considered mortgage fraud.

Here are some examples based on a sales price of $450,000 for rates available on February 13, 2014 at 8:15 am (NOTE: for your personal rate quote based with current pricing on homes located in Washington state, click here).

Second Home with 10% down payment: 4.375% (apr 4.830) priced with 1.015 discount points with a down payment of $45,000 and a loan amount of $405,000. PIMI payment  (principal, interest plus mortgage insurance) estimated at $2217.86.

Owner Occupied (Primary) Home with 10% down payment: 4.375% (apr 4.752%) priced with 0.997 discount points with a down payment of $45,000 and loan amount of $405,000. PIMI payment (principal, interest plus mortgage insurance) estimated at $2170.61. NOTE: The pricing of the owner occupied and second home are essentially the same except for the amount of private mortgage insurance and there’s just a small difference in the points (discount).

Fannie Mae HomePath Second Home with 10% down payment: 4.625% (apr 4.781%) priced with 1.114 discount points with a down payment of $45,000 and loan amount of $405,000. Fannie Mae HomePath mortgages do not require private mortgage insurance or an appraisal. P&I payment of $2082.27.

Investment Home with 20% down payment: 4.750% (apr 4.914%) priced with 1.188 discount points with a down payment of $90,000 and a loan amount of $360,000. P&I payment of $1,877.93

NOTE: All scenarios above are based on credit scores of 740 or higher for a purchase in greater Seattle with a sales price of $450,000 using 30 year fixed conventional conforming mortgage (360 payments). Payments above do not include property taxes or home owners insurance.

Mortgage rates change constantly and may have changed by the time you’re reading this post. If you would like me to provide you with current mortgage rate quote based on your personal scenario for your home located anywhere in the state of Washington, where I am licensed, click here.


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