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.

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Buying a Vacation Home in Washington

WPointless Jones Island Aug 2014ashington State has so many great areas for folks to vacation in.  From the deserts in eastern Washington, rugged mountains, the Pacific coastline or the San Juan Islands; I think our state pretty much has it all to offer. It’s no wonder I’m seeing more clients taking advantage of lower home prices and interest rates to buy a second home.

Mortgage rates are essentially the same for a second home as they would be for a primary residence.  Here are some requirements lenders have for financing an vacation (or second) home:

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Financing a “Kiddie Condo” for your College Student

2015-05-21_0706A few weeks ago, I helped a Kent couple purchase a condominium located in Seattle for their daughter to live in while she attends college at Seattle University. They were prequalifed with their credit union, however the credit union was treating the transaction as if it were an investment property even though the couple (we’ll call them Mr. and Mrs. Kent) were not going to rent the property.

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Buying a Home with Owner Occupied Financing After Refinancing Your Home as Owner Occupied

I’m seeing a trend where home owners are refinancing their current home as “owner occupied” and then weeks after closing, try buying another home as “owner occupied”.  You cannot have two owner occupied homes.   It’s really that simple. 

I’ve had a couple of surprised people contact me who thought they could buy a home just following a refinance only to learn by their mortgage originator that they have to finance the new home as an investment property.   Financing an investment property not only offers a slightly higher interest rate than a mortgage for a primary residence, it also has tougher guidelines with higher down payment requirements and greater reserves (savings).  

If you are considering refinancing your primary residence and possibly buying another home, you should discuss this with your mortgage originator as soon as possible.  You will be signing a deed of trust which has language that you intend to occupy that home for 12 months.  Some folks might feel that the “intending to occupy” means that they can refinance as owner occupied and a couple months later buy “owner occupied” and odds are, they will be caught.  It may be purely unintended for this to happen, but be prepared for the possibility the new purchase to be treated as an investment property, even if you’re going to live there. 

If you’re considering taking advantage of the lower home prices and lower rates, you may want to delay your refinance of your current “primary residence” or talk to your mortgage originator about refinancing your current home as an investment property.  Your next purchase might qualify as a second home, however the property typically needs to be about 50 miles away from your primary residence (the one you just refinanced) and it is the underwriter’s call on whether or not the second home “makes sense”…this can be a real grey area.  

Life happens and we know plans change. Be upfront with your mortgage professional if you’re thinking about buying a home.  You may want to ask them to verify with your personal scenario with an underwriter.  Finding yourself in the middle of a transaction to buy your next home and having it declined as owner occupied can be an expensive experience.

Related post:

Is it a Primary Residence, Second Home or Investment Property

Can I Convert My Existing Home to an Investment Property to Buy My Next Home?

Is it a Primary Residence, a Second Home or Investment Property?

Every so often, someone will be interested in financing for a home they will not be living in 100% of the time…they want the best rate which is “owner occupied”.   It’s crucial to know the difference in your lenders eyes and to be completely upfront so you avoid committing fraud.  Bottom line, the property and situation needs to make sense to the underwriter.   Here are some basic definitions:

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Family Opportunity Mortgage…now at Mortgage Master Service Corporation

The Family Opportunity Mortgage helps families who are buying or refinancing homes for college students, elderly parents and disabled adult children.   Without this program, these transactions would often have to be considered as “investment properties” with higher interest rates and closing costs.   Now, it can be treated as a vacation or second-home mortgage.

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